Typically, stocks are divided into two broad categories – growth and value. For the current S&P 500 (SPY) environment, I don’t think that is sufficient. Instead, I believe a better way is to classify stocks into three categories – growth, value, and reflation. Reflation stocks outperform when optimism about economic growth and the economy returning to normal increase. Think of energy, materials, and travel stocks. Value stocks are comprised of industries like utilities, defense, and consumer staples that deliver steady returns and perform best when interest rates and growth expectations decline. They are the best bet in an environment of low-growth and low rates. In recent months, growth stocks have underperformed after leading in 2020. For the sake of clarity, I define them as stocks with exposure to industries that are expected to rapidly expand in the coming years (independent of the broader economy) and tend to have high multiples and are riskier in the event of a market sell-off or poor earnings results. In this week’s commentary, I want to discuss why the environment is improving for this group and the reflation stocks, plus how we will take advantage. Read on below to find out more….(Please enjoy this updated version of my weekly commentary published September 08, 2021 from the POWR Growth newsletter).
Let’s start with our usual look at the one-month, hourly chart of the S&P 500:
Since last week, we’ve seen an attempt at new highs which was quickly rejected. However, the selling has been pretty light in terms of volume, and we are less than 1% from all-time highs.
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