Rotation from growth to value: update
Updated
At the beginning of September I forecasted that we would likely see some rotation from growth to value in the next few months, and I laid out three target prices for the RSP (equal weight) to SPY (cap weight) ratio. This ratio has continued to behave fairly predictably, oscillating within its seven-month range and making fairly perfect touches of the target levels.
Lately we've been making higher lows in this ratio, which suggests that it might be working itself up to an upside breakout. We've obviously achieved my first price target several times and tested the second target twice. the most recent test of Target 2 came this morning after Pfizer's vaccine news.
In my opinion, Biden's victory and the prospect of an effective vaccine both make value rotation increasingly likely. The Democrats have talked of taking anti-trust action against large-cap growth companies, and a vaccine means pandemic growth winners like Amazon may soon see more competition from value companies with more in-person traditional business models.
A vaccine of course won't change consumer behavior right away. It has to be approved, manufactured, and distributed. But I do think we will sometime soon take a run at Target 3.
Lately we've been making higher lows in this ratio, which suggests that it might be working itself up to an upside breakout. We've obviously achieved my first price target several times and tested the second target twice. the most recent test of Target 2 came this morning after Pfizer's vaccine news.
In my opinion, Biden's victory and the prospect of an effective vaccine both make value rotation increasingly likely. The Democrats have talked of taking anti-trust action against large-cap growth companies, and a vaccine means pandemic growth winners like Amazon may soon see more competition from value companies with more in-person traditional business models.
A vaccine of course won't change consumer behavior right away. It has to be approved, manufactured, and distributed. But I do think we will sometime soon take a run at Target 3.
Note
We are now above Target 2, and it looks like we may make a run at Target 3!Note
I think renewed lockdowns New Mexico, Oregon, Vermont, Virginia, and West Virginia may spoil the value-growth rotation trend next week.Note
I sold a few shares this morning because of the lockdowns, but for the most part I opted to stay in this trade on news of the Moderna vaccine. Not only is it 94.5% effective, but it also can be stored in a home refrigerator for 30 days (whereas the Pfizer vaccine requires specialized cold storage equipment).Note
We're about halfway to Target 3 today.Note
About 2/3 of the way to Target 3.Note
With strong ecommerce numbers on Black Friday, weak brick-and-mortar numbers, and prolonged state shutdowns, I suspect growth will outperform value for the next few weeks. Probably dip to at least Target 2, maybe even Target 1 before we try an upward move again.Trade closed: target reached
Congratulations to all who followed this trade all the way through to Target 3. Personally I think we are just at the beginning of what will be a long cycle of value outperformance, but for now, I am marking this trade "closed: target reached."
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