Rotation from growth to value: updateAt 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.
