On Friday evening, in the course of documenting how Jerome Powell managed to lift U.S. stocks to their best week since 2011 with what was generally seen as a dovish relent in the face of persistent volatility in equities, widening credit spreads and unyielding pressure from Donald Trump, we noted that the broad market rally was accompanied by renewed outperformance in Growth.
That’s no surprise. The October selloff was characterized by fairly dramatic rotations from Growth to Value and if there’s anything we’ve learned over the past two months, it’s that this is not a market that is prepared to digest that rotation with anything that even remotely approximates alacrity.
Growth, Tech and Momentum have been in the driver’s seat for so long that a passing of the leadership baton appears to have become a wholly untenable proposition, which raises concerns about the extent to which the late-cycle trade will entail more pain at the index level as the titans finally buckle under the weight of their own popularity.
Well, a quick check of the flows data from November reveals something pretty interesting – or at least it’s interesting from where I’m sitting. It looks like one popular Growth ETF saw a massive inflow on the month even as the ratio between it and its Value counterpart (i.e., relative performance) has rolled over after a relentless, multi-year trek higher.
That’s pretty remarkable and suggests that dip-buyers in Growth are piling in at a precarious time as Value looks like it wants to try and outperform on a sustainable basis for the first time in a long time.
Meanwhile, Value funds have enjoyed huge inflows. As Bloomberg notes, Value factor products raked in more than $4.5 billion last month, the most in almost two years. Here’s a look at IWD and IVE:
Bottom line: if you think both Growth and Value can’t rally at once going forward, someone is offsides here.
Who that “someone” is will probably end up determining the fate of the broader market assuming Growth outperformance is necessary if we’re going to get more weeks like the one we just enjoyed.