It’s Time For Investors To Go All-In On Growth Stocks
What follows is a portion of this weekend's note sent to Zenolytics clients: The Nasdaq remains in an overall consolidation phase following the March lows. You can see in the chart above that the Nasdaq experienced expansions in volatility into the lows, followed by the large reversal on March 5th, briefly driving the Nasdaq below the yellow trajectory before reversing to close near the highs of the day. Notice that since this reversal took place, the Nasdaq daily ranges have steadily been experiencing contractions in volatility. These contractions in volatility following the type of expansionary reversal we experienced earlier this month are indicative of a low being made, with the market now taking its time to carve out a base from which it can move forward. As we move closer to Q1 earnings being released, it will become less likely that we will come anywhere near the March lows as the quality of earnings out of tech will be superb, with guidance to match. UPST went a long ways towards telling investors this past week that there remains an appetite for exceptional growth in the marketplace. Of course, the current chatter is all about the reemergence of value. However, if you look at the chart below, you will see that whenever value gets this overextended versus growth, it has been a poor bet. This is the ratio of the Ishare Value Factor etf versus the QQQ. The last time we experienced a spike of this nature was in late 2016/early 2017. At that time, the Nasdaq experienced a 7% correction during Q4 2016 from peak to trough. Presently, we have experienced a 12% correction in the Nasdaq from peak to the recent March trough. When you look at the ratio above what it does is to allow an investor to basically boil the entire market down to one question: Is growth finished as a superior performing asset? With this type of extension over the 200 day moving day average of value versus growth, every single other incident of this divergence since the bull market started earlier this decade has been an opportunity to throw everything you have, including the bathroom toilet and kitchen sink, at the technology. The only question an investor has to ask themselves right here is will this time be different? Is this the moment that growth fades for the long-term? One thought I've had frequently over the past few years is that the modern day, experienced investor has come out of a framework that involved numerous booms and busts. Take myself, for example. I experienced the 2000 internet bubble top, witnessing wealth get...