WSJ: Growth Stocks Shine in Rising and Falling Markets

Published April, 2020

By Gunjan Banerji

Growth investing hasn’t cooled even as big price swings have rattled U.S. stock markets

Investing in companies promising high growth in the future has become a profitable way to play rising and falling markets alike.

Investors have flocked to growth stocks for years now, a bet that hasn’t cooled even as many are anticipating a recession ahead and the U.S. stock market has been roiled by some of the biggest swings in history.

These companies promise rapid growth, often as a result of novel and exclusive products. Investing in growth stocks is typically considered an “‘offensive’ strategy,” one that many expect to outperform in ascending markets, but underperform as the economy takes a dive, according to Jim Paulsen, chief investment strategist at the Leuthold Group.

Over the past 15 years, growth investing has outperformed during both rising and falling markets, according to Mr. Paulsen, a marked shift from prior decades.

“From 2005 forward, the growth style has exhibited the unique character of being an investment for all seasons,” Mr. Paulsen wrote in a note Tuesday.

The S&P 500 Growth index is down 6.5% this year, while the S&P 500 Value index is down 21% this year, continuing a trend from earlier in the year.

Value stocks are typically defined as companies whose shares trade at a low multiple of their book value, or net worth. Shares of banks and manufacturers have fallen into that category in recent months.

High-growth technology stocks helped power much of the stock market’s 11-year bull market, which came to a halt in March. They have continued to outperform during the recent downturn as investors have wagered that these companies will continue to do well and be able to endure the coronavirus pandemic.

For example, the tech-laden Nasdaq Composite has shed 5.3% this year, compared with the S&P 500’s 13.4% decline. Big tech favorites such as Netflix Inc. NFLX -1.59% and Amazon.com Inc. AMZN -0.40% are up around 30%.

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