Morgan Stanley Warns Growth Stock Underperformance Just Starting

This post was originally published on this site

(Bloomberg) — Lagging returns from U.S. growth stocks, recently surpassed by their value peers, mark only the start of a longer-term move, according to Morgan Stanley (NYSE:).

The shift favors an overweight position in financials, consumer staples and utilities, said Michael Wilson, the bank’s chief U.S. equity strategist. The S&P 500 Value Index has returned about 5% since the start of August compared with the 0.9% for the S&P 500 Growth Index.

“The bottom line is that the winds of change are upon us,” Wilson wrote in a report Sunday. “The long-overdue adjustment process for the most expensive secular growth stocks is under way and will likely continue until valuations become so cheap that they discount a more achievable outcome on growth and profitability and/or the risk of economic recession and lower capex subsides. I don’t think we’re there yet on either score.”

It’s a debate that’s captivated stock pickers for years and is dividing Wall Street. Unless the economic outlook changes materially, Goldman Sachs Group Inc (NYSE:). strategists said this month they prefer growth over value, commonly defined as those trading cheap to fundamentals.

While the S&P 500 Index approached a record high on Friday, some growth shares have been underperforming, and Morgan Stanley highlighted software companies in particular. The S&P North American Expanded Technology Software Index is down 7.7% from its record reached on July 26. The gauge has surged 97% since the end of 2016 — more than double the S&P 500.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.