asset allocation  |  september 9, 2020

Growth Versus Value: A Balanced View

Stocks are bifurcated, with secular trends driving growth.


Key Insights

  • Although the performance of growth and value stocks has been widely bifurcated, we maintain a balanced view.

  • Trends driving growth outperformance may endure long term, while value stocks could offer more upside potential near term should economic activity normalize.

Tim Murray, CFA

Capital Markets Strategist, Multi‑Asset Division

As summer draws to an end, stock performance has been widely bifurcated on a growth-versus-value basis (see performance chart below). Given the large divergence, value seems to offer more near-term upside potential than growth—particularly if the development of a coronavirus vaccine normalizes economic activity.

Although value stocks could narrow the performance gap considerably, we remain cautious. In our view, the long-term trends driving the outperformance of growth stocks relative to value will endure in a post-pandemic world and may strengthen further.

Evaluating Growth and Value Stocks

Stock performance has been bifurcated, with secular trends driving growth outperformance.

There are two charts - the first chart is a line chart that shows the 2020 Year-to-Date Performance (as of August 24, 2020) from Jan 2020 to August 2020 with the S&P 500 Value at -10.80%; S&P 500 Growth at 21.69%; and S&P 500 at 6.47%. The second line chart shows the rise of e-commerce as a % of all online u.s retail sales from 2010 to 2020. As of December 2009 stood at 6%; December 2019 at 11%; April 2020 at 18%; and June 2020 at 15%.

Past performance is no guarantee of future results.
Index performance is for illustrative purposes only and is not indicative of any specific investment. Investors cannot invest directly in an index.
Sources: Standard & Poor’s (See Additional Disclosure) and U.S. Census Bureau/Haver Analytics. T. Rowe Price analysis using data from FactSet Research Systems Inc. All rights reserved.

One notable trend is the shift from brick-and-mortar retail to online. We believe the magnitude and long-term implications of this shift may be underappreciated, and we do not see a catalyst for a sustained reversal. Between 2009 and 2019, the share of online commerce as a percentage of all retail sales increased from 6% to 11%. By April 2020, that percentage leapt to 18%, exceeding the total increase experienced over the previous decade.

Although the trend has reversed somewhat with the easing of lockdown measures, the move toward e-commerce—which was already in progress—will likely continue. Furthermore, while the power of this trend is already largely reflected in the market, online penetration remains relatively low, with significant room for increased adoption. Similarly, the ongoing shifts in media consumption and to cloud software are also likely to persist.

Given these trends and the expectation that the financials sector—a meaningful segment of value stocks—will be burdened by low interest rates for a while, our outlook for growth and value is balanced, despite value’s large underperformance year-to-date.

Additional Disclosure

Copyright © 2020, S&P Global Market Intelligence (and its affiliates, as applicable). Reproduction of any information, data or material, including ratings (“Content”) in any form is prohibited except with the prior written permission of the relevant party. Such party, its affiliates and suppliers (“Content Providers”) do not guarantee the accuracy, adequacy, completeness, timeliness or availability of any Content and are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such Content. In no event shall Content Providers be liable for any damages, costs, expenses, legal fees, or losses (including lost income or lost profit and opportunity costs) in connection with any use of the Content. A reference to a particular investment or security, a rating or any observation concerning an investment that is part of the Content is not a recommendation to buy, sell or hold such investment or security, does not address the suitability of an investment or security and should not be relied on as investment advice. Credit ratings are statements of opinions and are not statements of fact.

Important Information

This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are those of the authors as of September 2020 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

The fund is subject to market risk, as well as risks associated with unfavorable currency exchange rates and political economic uncertainty abroad.

This information is not intended to reflect a current or past recommendation concerning investments, investment strategies, or account types, advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Please consider your own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. The value approach to investing carries the risk that the market will not recognize a security’s intrinsic value for a long time or that a stock judged to be undervalued may actually be appropriately priced. Growth stocks are subject to the volatility inherent in common stock investing, and their share price may fluctuate more than that of income-oriented stocks. All charts and tables are shown for illustrative purposes only.



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