Transcript
Hello, everybody, welcome to Friday, the S&P 500 was up a little bit less than 1.4%. Today completing another good week for the market as a whole. But we are seeing quite a battle this week that we really didn’t see last week last week was about the election. And it was about growth type stocks, the two big classifications of stocks are growth versus value. So growth stock is a company whose earnings are growing quite rapidly, and coming up quickly and the price will be quite high versus those earnings, because there’s an expectation that they’re going to continue to have fast growing earnings.
So Microsoft and Apple would be classic examples of that. A value stock, his earnings are growing quite slowly. And the price compared to those earnings is a lot lower. So gross stock might be selling at 30 times earnings, and a value stock might be at 10 to 15 times earnings, for example. And sometimes value stocks are value stocks, because the companies are doing terrible. Poor management, the market is falling apart those types of things. This pandemic has created a lot of value stocks from good companies well run. And the reason they’re not making as much money is because of the virus, you know, airline would be a classic example of that. And so what we saw this week is very significant. We saw a very violent rotation into these into these value stocks.
Now value stocks have underperformed growth stocks for the last 14 years. But then that seems kind of strange to be looking at value stocks now. But things is kind of like a rubber band, you know, you keep going growth, growth, growth, growth, growth, and all of a sudden value can snap up. So it has to be something that we have to consider, along with the fact that the market is looking long term. And so you know, two years from now, will there be more people flying than there are now, if there are, then you’re going to start to see those airline type of stocks, for example, bank stocks, restaurant stocks, you know, all the things that need the vaccine to come through doing quite well.
And so that’s the battle that’s happening. It’s what I’m looking at right now. It’s what I’m going to look at this weekend, and I’ll kind of report on what I find, as to whether it’s worth starting to nibble at some of those value stocks to kind of create, you know, some more balance within the portfolios. You know, we’ll see. The vaccines themselves are really long ways from really having an impact. But again, the markets looking way past that point, as far as I can tell, and so has very interesting battle happening right now. And I think it’s the most important thing, you know, we have politics, we have the virus going up, the market is looking at but value versus the growth component and really looking at past, you know, a vaccine being here and working.
So anyway, those are the things that are happening and I’ll let you know what I find out on Monday. Thank you very much for listening this week, and I look forward to talking to you next week. Thank you.