The attached table summarizes the cumulative total returns of the iShares Value ETF, IVE and the iShares Growth ETF, IVW in addition to the overall market returns. Taking into consideration the very strong outperformance of Growth over Value over both the last 10- and 5-year periods, the very marginal rebound in Value over Growth over the last year is no indication that Value has finished its recent uptrend. As I have mentioned previously, Value will end its current rebound only when another recession is on the immediate horizon.
However, cyclicals remain much more volatile than either Growth or the overall market and periodically experience sharp corrections even in the midst of an uptrend. If you do take profits in the Value stocks at some point, don’t forget to go back into them after they experience a short- term fall in price.
Differing from past Federal Reserve Governors, Powell does not seem at all concerned with the recent rise in inflation. Historically in periods of above average inflation, commodity stocks have tended to outperform the overall market. Late Cycle sectors include Materials, Energy and Industrials.
Global economic growth is expected to continue to rebound next year, but at a slower, more sustainable pace than over the last 12 months.
It appears that the slowing of economic activity globally is more of a supply issue than a demand one.
As we all know equity sector performance is more important than stock selection in your overall investment performance. At this time in the economic cycle, it is critical to be active in your investment decisions and not to simply buy an index. An example of this is the Energy sector. While its long -term outlook is not favourable with the switching of power generation from hydrocarbons to renewable energy, the immediate outlook for crude oil is quite favourable resulting in the strong recent performance. Consequently, it is important to balance both the short- and long-term outlook in your portfolio selection of securities and equity sectors.
Continue to have a barbell approach to equity sectors by having exposure to all groups. However, it is important to maintain your equity exposure to the cyclical / value side of the market, namely in Financials, Industrials, Energy, Consumer Discretionary and Materials.