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  • Writer's pictureRobert Baharian

This One Chart...The end is nigh

America will be subject to water rationing by 1974 and food rationing by 1980. - Dr Ehrlich, Ecologist, 1970

Human beings have a tendency to extrapolate the past into the future. Indefinitely. It's called extrapolation bias - creative name, I know.

The stock market just closed it's best month since 1988, and Bitcoin rose almost 40% in November, while gold saw it's worst monthly performance in four years.

November also marked something of a turning point - a shift in the S&P 500 Growth to Value ratio. Since the GFC, Growth stocks such as Facebook, Amazon, Apple, Netflix, Google, Microsoft have been on a tear. Even more so since COVID-19. At the same time, we have seen a corresponding decline in Value stocks such as Berkshire Hathaway, Johnson & Johnson, JP Morgan, Bank of America, and Walmart. Investors would be forgiven for thinking the rules to investing have changed, especially since the pandemic.

The chart below shows us the ratio of Growth to Value stocks in the S&P 500. We have seen a steep rise in the value of Growth stocks since the GFC, and an even steeper since the pandemic. When we look back in history, we see such behaviour has occurred. Take a look at the lead up to the tech-wreck during the 90's. We saw Growth stocks rise rapidly relative to Value stocks. What we saw following the collapse of the early 2000's was a reversal in this ratio. In other words, investors selling down Growth stocks and buying up Value stocks.

This shift may be the beginning to a similar long-term trend. As vaccine's begin to be made available, hopes and expectations for an economic rebound in 2021 are rising. And the risks begin to rise for the 'stay at home' names that relied on a shutdown economy.

Maybe, just maybe, it wasn't different this time. Nothing lasts forever.


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