Wednesday, August 05, 2015

Style indexes are diverging

All the way back in 2007 when I was still learning how to read stock market signals, I noticed that growth and value stock prices were separating.  Even within the family of value stocks, high-dividend stocks were separating at a higher rate, and REITs were falling even faster.  The combined price charts reminded me of a squadron of WWII fighter planes pealing away from their formation before an attack.

Today the market is doing something similar, although not yet as severely.  Up until the end of 2013, value and growth stocks were moving almost in lockstep.  Even boring dividend-paying stocks were keeping up with the usually high-flying NASDAQ. Then about 18 months ago these styles all began separating in the same order that they separated in 2007.  Not only are growth stocks outperforming value, but the NASDAQ (the high-tech subset of growth stocks) has been doing even better while dividend stocks have lagged behind the rest.

This doesn't necessarily mean that the repeat of the 2007-2009 bear market is upon us, but I'd be foolish not to look out for it.

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