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Wall Street selloff bruises growth, but value still not in vogue

(Reuters) - Wall Street’s two-day tech selloff has hurt growth stocks much more than value stocks, but that may not signal the start of a shift in favor between the two groups that some investors have long anticipated.

With top-shelf growth names Apple, Microsoft, Amazon, Facebook and Alphabet tumbling 6% or more in the past two sessions, the lead enjoyed by the S&P 500 growth index over value has dropped almost 5% from that ratio’s Tuesday record high.

For a graphic on Growth’s record dominance on Wall Street Growth’s record dominance on Wall Street:

Bank stocks, which have underperformed in recent months and are widely viewed as potential value plays, outperformed on Friday. As the S&P 500 dipped 0.5% and the Nasdaq dropped 1.2%, the S&P 500 financial index jumped 1.2%. Industrials, another weak performer in recent years, rose 0.8%.

Following over a decade of Wall Street gains driven by growth stocks that are now trading at extreme earnings multiples, many strategists predict that investors will shift their focus to value.

Investors generally define value stocks as companies trading at low prices relative to their often stagnant or shrinking earnings. Investors buying value stocks expect their growth and valuations to improve.

Robert Pavlik, chief investment strategist and senior portfolio manager at SlateStone Wealth LLC in New York, summed up why many on Wall Street continue to pay top dollar for companies like Amazon and steer clear of value stocks at a time when the coronavirus pandemic has crippled the U.S. economy and darkened the outlook for its recovery.

“Why would you want to be invested in a company whose business is not growing?”

With the S&P 500 tech index up 27% this year and fueling Wall Street’s rally, along with Amazon, Alphabet and Facebook, the occasional pullbacks seen in recent months have raised questions about whether a rotational from growth to value was underway. In each of those cases, the answer was, “No”.

The last time the S&P 500 growth index’s lead over the value index fell from a record high by more than this week’s drop was only two months ago. Since then, growth has extended its lead by an additional 6%.

The S&P 500 growth index has surged 20% in 2020, while the value index has fallen 11%.

Reporting by Noel Randewich; Editing by Chizu Nomiyama

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