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IS GROWTH RIPE FOR A REST VS VALUE?

Amid the market's push into record-high territory, growth stocks have been among the main drivers. In fact, when it comes to the perennial battle between growth and value, growth recently hit all-time highs relative to value.

However, in early August, the S&P 500 growth .IGX/S&P 500 value .IVX ratio flirted with a long-term resistance line. Since then, growth has stumbled slightly on a relative basis.

Of note, the IGX is now up 13.8% year-to-date vs an IVX 5.2% gain, and a 9.6% rise for the S&P 500 index .SPX. The ratio is up 8.2% YTD, with growth on pace to outperform value for a third-straight year.

Meanwhile, growth can thank strength in Mag 7 names MAGS.K, tech .SPLRCT, and chips .SOX for its advance to new highs vs value.

Since the April 8 close, MAGS is up nearly 50%, tech is up 53%, and chips have surged 62%. The IGX has gained 39%, while the IVX is up about 20%.

As of the end of July, all of the Mag 7 stocks were among the top 10 holdings of the SPDR S&P 500 growth ETF SPYG.P, accounting for 44% of its exposure. With this, tech held a 62% overall weight in the SPYG.

Against this, there were only three Mag 7 stocks in the SPDR S&P 500 value ETF's SPYV.P top 10 holdings, at around an 18% weight in total. Tech, at about 28%, was also the largest weight in the SPYV, but still much less than in the SPYG.

Tech's four-month Rate-of-Change is the strongest of any S&P 500 sector. As long as this group's dominance is maintained, growth should continue to chug along vs value.

However, on August 6, the IGX/IVX ratio rose to 2.379, which put it just shy of the resistance line from its 2000 peak. Since then, the ratio has dropped off, ending Monday at 2.349.

A ratio reversal back below its rising 50-day moving average $(DMA)$, which ended Monday at about 2.31, can further derail the trend of growth's outperformance vs value.

That said, since May 2023, the ratio's 50-DMA has seen only one minor closing violation of the 200-DMA (in early February 2024). Thus, despite the ratio's numerous gyrations over the past couple of years or so, and the potential now for a greater near-term setback, the prevailing trend of growth outperforming value off of the early 2023 trough ultimately persisted.

(Terence Gabriel)

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(Terence Gabriel is a Reuters market analyst. The views expressed are his own)