Much of 2021's defining trade was the rotation from growth to value stocks. Of course, this only partially unwound a trade that has dominated for much of the past decade as growth has massively outperformed value from 2009 to 2021. The major reasons for this secular shift was the increasing dominance of technology, economic growth that was barely positive, low inflation, and low interest rates.
So, it shouldn't be surprising that this trade is unwinding given that all of these factors are now reversing. The most impressive earnings growth is now found in energy
If anything, the past decade could be summed up by saying there was weak aggregate global demand which led to a more deflationary environment. Now, the fiscal stimulus deployed by countries all over the world has for the first time in many years led to an environment of strong aggregate, global demand for much of 2021.
However, this growth impulse now seems to be rolling over, and it's increasingly likely that the global economy is facing a bout of deceleration. To be clear, growth is not going to go negative but certainly slow. This will also likely have ameliorative effects on inflation as well.
This is likely setting us up for a rotation from value stocks into growth stocks. Value stocks outperform during periods of accelerating economic growth as stocks in this group like materials, energy, or financials
Therefore, investors should consider using market weakness as opportunities to increase exposure to growth stocks.
