Growth Or Value: Who's Driving The Bus?

| About: Technology Select (XLK)

Conventional wisdom suggests that value reigns at the beginning of bull markets and growth overtakes as the bull market progresses. But there is data that suggests another relationship: That is, that financials and tech play a dominant role in the respective strength of growth and value, this is according to research by Standard & Poor's Managing Director of US Equity Strategy, Sam Stovall.

The correlation of monthly percentage changes in both the growth/value and tech/financials relative strengths generates a coefficient of 0.73 (1.0 would mean that they track perfectly). Further, the correlation between monthly price changes in the ten S&P 500 sectors suggests that Financials and Tech play a significant role in the movement of the growth/value relative strength.

Over the last 26 calendar years, the S&P Growth Index has outperformed the S&P 500 Value Index 62% of the time. In the last 9 years, it has done so 89% of the time. While there may be a reversion to the mean (that is, a swap between the two) it seems that, for the time being, growth will remain behind the wheel.

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