Power struggle continues — Growth stocks fall and value stocks rise on news of positive vaccine news - The Average Joe

Power struggle continues — Growth stocks fall and value stocks rise on news of positive vaccine news

November 17, 2020

The power struggle continues between growth and value.

Growth stocks fell while value stocks soared on the news of positive phase 3 clinical trial results from two vaccine makers:

  • Moderna’s ($MRNA) vaccine showed 94.5% effectiveness — More than 9 in 10 of vaccine recipients blocked infections.
  • Pfizer and BioNTech’s joint vaccine showed over 90% effectiveness.

(Catch upA quick lesson on growth and value stocks)

Power struggle

According to a BMO Economics report, stocks that struggled most from the pandemic gained the most, while those that benefited from the pandemic fell following the results:

  • Growth stocks like Zoom ($ZM) and Wayfair ($W) fell over 20%.
  • Value stocks like US banks and industrial stocks gained over 11% and 5%.

Since the beginning of COVID, investors have favored growth stocks led by tech companies benefiting from stay-at-home trends. Its counterpart, value stocks, have significantly underperformed.

As reported by Lyall Taylor, the power struggle between growth and value has shifted hands 3 times over the past 50 years:

  1. In the 1960s – 1970s nifty-50 bubble, high-quality growth stocks went through a strong bull market before falling more than 80% over the next 15 years.
  2. In the 1990s dot.com tech bubble, investors made a fortune on high-growth tech stocks before most fell over 85%.
  3. In the past decade (2010 – current), growth stocks are going through yet another bull market and in Taylor’s view, a swing towards value stocks is inevitable

3 takes on the future of value and growth stocks

Matt Peron, director of research at Janus Henderson, sees 3 factors that could shift money into value — US elections, Pfizer vaccine, and overpriced growth stocks.

Edward Moya, senior market analyst at OANDA, said tech stocks will continue to benefit from stay-at-home trends and vaccines will take time to be widely distributed.

Richardson GMP, a wealth management firm with under $29b in assets, recommends investors take some of their profits from growth stocks and redeploy it into value stocks.

For investors… Is value here to stay?

Value stocks like cruise lines, airlines and theater stocks, that were hit the hardest by COVID, had gained the most on positive vaccine news over the past week.

Does that make them attractive stocks now? Robbe Delaet, contributor at Seeking Alpha, doesn’t think so. Despite rising on initial vaccine news, he warns that the virus had significant disruptions on their businesses financials and that they are unlikely to be good long-term investments.

Then how do you know if a value stock is a good investment? Delaet recommends looking for investments whose long-term perspectives are not affected by the virus. I.e. Amazon, who may continue to benefit from increased online shopping post-COVID.