As can be seen in Exhibit 1, after experiencing a -6.3% correction in the first week of August US equities (black line) staged a strong ‘V’ recovery to post a + 2.2% return for the month and importantly also close in on the high reached in late July. However, the ‘V’ shaped recovery in the aggregate market masked the big rotation out of Growth into Value (blue line) that started in July and continued in August.
In fact, the Growth Style has underperformed Value by -10.1% since 10th July.
Exhibit 1: The leadership change viewed via the prism of the Growth/Value performance
Since July 10th the Mag 7 have all been negative contributors
Following the dominance of the contribution of the Mag 7 stocks to aggregate performance over recent months, Exhibit 2 shows that since July 10th they have all delivered negative contributions to aggregate market returns.
In fact, for the first time in a long while no Tech stock featured in the top 10 contributors in the period July 10 to August 31st.
Exhibit 2: The Nifty 10 stock return contributions for H1 2024
A proxy for the Growth/Value trade is the performance of the Technology and Financials sectors
Exhibit 3 compares the + 9.6% performance of the US Financials sector (the largest component of Value) against the -7.5% performance of the Technology sector (the largest component of Growth) since July 10th.The ‘bull steepening’ of the US yield curve that commenced in July contributed to the rotation into Financials. The weakness in the Tech sector and Mag 7 was driven by a mixture of profit taking and Q2 guidance disappointing elevated expectations.
Exhibit 3: Financials (the new leaders?) have pulled away from Tech since July 10th
Source: Wilshire Indexes. FactSet. Data as of August 30, 2024
Download the report here
