Is the season changing?


Is the season changing?  It has been a remarkable streak since the recovery began after the financial crisis almost ten years ago when “growth” companies began outperforming their “value” complements. Generally speaking, the relatively low level of debt on their balance sheets and the sparkle of growth potential in a low-growth world made these companies darlings of the market. As time went on the narrative took hold that a handful of companies, some of which were cleverly named the FANG stocks, are on a course to transform the modern business world. And so they have…changing how we receive news, connect with others, are entertained, shop for the things we need, and literally hold access to the digital world in our hands.

Inevitably, such catalysts for transformative change bring valuations that might exceed reality which is eventually corrected as the narrative changes. There are signs that this is happening. This past week, growth stocks have struggled whereas value sectors like Financials, Energy, and Industrials have outperformed. Clearly, a growth streak of several years is not broken by a few days but investors with longer memories remember that cycles of value and growth are as dependable as the seasons of fall and spring…you just can’t mark your calendar for the start and stop.

The date you can mark your calendar for is September 28th. This is the day that index providers will reorganize the sector classifications to replace the old Telecommunication sector with a new name, the Communication Services sector. It will also top off its weight to around 10% of the index by moving companies from the Technology (like Facebook and Google) and Consumer Discretionary (like Netflix and Comcast) sectors changing all three materially. It’s a reflection of how these businesses and our world has evolved. The only constant is change.

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