It appears a shift in tides is looming over the stock market. For the last two years, growth stocks, that is those which are more speculative and less profitable, have been wildly successful bets to make. Government stimulus packages, easy credit and high liquidity sent public companies with obscure business models and limited product offerings to sky high valuations, with some investors calling it a tech super bubble.
This past month, however, has seen quite the opposite. Value driven stocks, often seen as more “traditional” and less exciting, have been gaining in the recent bearish downturn.
Showcasing this phenomenon is the now-modest dissonance between Billionaire investor Warren Buffet’s Berkshire Hathaway fund (BRK.A), and celebrity-status holding Cathie Wood’s ARKK Innovation Exchange Traded Fund (ETF) (ARKK). Wood’s ETF had seen meteoric returns throughout the last two years, as billions of dollars poured in to reap the benefits.
Before Monday’s market open, the difference in the funds’ returns since the start of 2020 was a measly eight percentage points. This is in contrast to the multiples of returns ARKK once had over BRK.A. It now appears that Cathie Wood’s is in danger of being overtaken by Buffet any day now.
Macroeconomic forces like the U.S. Federal Reserve’s shift in policy toward tapering down its bond-buying faster than expected is accelerating the flight out of growth stocks. A strong rotation into more stable assets and legacy stocks is fueling ARKK’s demise.
Meanwhile, cryptocurrencies have taken a tumble, led by Bitcoin (BTC), and possibly even more speculative meme stocks have seen precipitous losses.
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