EarningsBeats Digest

Published: Fri, 12/17/21

EarningsBeats.com Digest for December 17, 2021

Growth Stocks Are The Holiday Special - Up To 50% Off

Wall Street is offering its own holiday special as growth stock prices are being heavily discounted. One thing that's being made clear is that the threat of inflation and higher interest rates is having its toll on companies whose market valuations are dependent on strong growth. Personally, I believe it's a temporary setback for growth stocks and they'll rebound stronger than ever in 2022, but for now I cannot argue with the extreme rotation that's taken place since I wrote my November 16th Trading Places blog article that discussed the dark clouds engulfing Wall Street:

The choppiness of the S&P 500 is evident, but really doesn't provide a glimpse into what's been happening with the growth stocks. The 3 relative price charts below the S&P 500 provide much more evidence of the current market rotation away from growth stocks. Growth relative to value is declining at all 3 levels - large cap, mid cap, and small cap - and that shouldn't be totally unexpected when the Fed announces it expects to raise interest rates 3 times in 2022. I don't believe we'll see 3 rate hikes, but the market is reacting to that possibility. Higher interest rates reduce the present value of future cash flows. Growth stocks are valued based on those future cash flows, so the recent selling certainly could be attributable to that.

Happy Trading!

Tom Bowley
Chief Market Strategist

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