$TNX: Monthly trend in rates helps rotate effectivelyUntil recently, value stocks were underperforming, prompting questions about the relevance of the value factor. During the pandemic, growth stocks like Amazon and Tesla thrived, but as economies reopened, value stocks improved. However, the shift to value didn't materialize as both value and growth stocks have experienced alternating periods of strong performance and underperformance which we could track effectively monitoring Time@Mode trends in the monthly TVC:TNX chart as shown in this publication.
Long-term interest rates, as indicated by the 10-year bond rate, play a significant role in determining the performance of these stocks. When rates rise, value stocks tend to do better because growth stocks, with longer-term cash flows, are discounted more heavily, making them appear less valuable.
We are entering a period of fast and substantial increases in interest rates, as per Time@Mode analysis of 10-year bond rates. Thus, I expect energy, value, coal and other names to perform well while this rally in yields lasts, relatively vs growth, biotech, and other rate sensitive names.
Best of luck!
Cheers,
Ivan Labrie.