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Over the past decade, markets and the global economy provided an ideal environment for growth companies to shine. However, with change in the air – an ongoing pandemic and a momentous election cycle – will the growth stocks that have propelled stock markets to historic highs still have their time in the sun?
The past ten years have seen a confluence of factors that made it easy for growth stocks to be a firm favorite in many investors’ portfolios. Low interest rates, tame inflation and an increasingly digitalized world have not only caused stocks, especially those related to technology and e-commerce, to become dominant worldwide, but also caused a major upwards drive in stock market levels.
Low interest rates have meant an abundance of cheap capital for these growing companies. Simultaneously, benign inflation has negatively affected many companies in the value sectors, such as energy and financials.
However, these times can’t last forever. We’re seeing evidence of a shift in markets, the economy and investor considerations in the wake of a global pandemic, including:
The gap between value and growth stocks is at its widest point in history – this brings opportunity for discerning, nimble investors.
Even before COVID-19, the government and Federal Reserve have pumped an enormous amount of money into our economy to support markets and the economy. This could result in inflation pushing higher from its current low.
In a very short time, the global pandemic has fundamentally altered the way we view many things. The same goes for companies: some industries and businesses look to be structurally impaired. Alongside this, the crisis has caused many investors to be more discerning about the way companies seek to make their money, with a greater focus on the quality and sustainability of earnings.
As the economy, markets and the political environment transition, we believe now is the time for investors to also consider taking an active approach to shifting their US equity exposure -- moving away from a myopic focus on growth into high quality companies that may be more suited to potentially producing attractive risk/reward characteristics and sustainable returns over the long-term.
The conditions during this transition have tended to favor value companies, though we are not advocating an all-out value and no-growth approach. The many potential political and tax changes on the horizon may adversely impact industries and specific companies in both the value and growth camps. We conclude, then, that these times call for a more flexible approach with the goal of extracting opportunities – and avoiding the risks – for stable growth and quality value.
Find out more here for how we believe portfolios could reflect these transitions.
Are market and economic dynamics poised to change? If so, how can investors position themselves to pursue return and manage risk in a shifting environment?weekly-market-monitor
Pioneer Fund has invested in quality sustainable businesses since its inception in 1928, flexibly allocating to both value and growth companies to pursue the best opportunities for risk-adjusted returns over time.
Pioneer Fundamental Growth Fund invests primarily in US large capitalization companies for long-term capital growth. We believe investing in quality stocks at attractive valuations can generate attractive risk-adjusted returns over time.
Before investing, consider the product's investment objectives, risks, charges and expenses. Contact your financial professional or Amundi US for a prospectus or summary prospectus containing this information. Read it carefully. To obtain a free prospectus or summary prospectus and for information on any Pioneer fund, please download it from our literature section.
Securities offered through Amundi Distributor US, Inc.
(Formerly Amundi Pioneer Distributor, Inc.)
60 State Street, Boston, MA 02109
Underwriter of Pioneer mutual funds, Member SIPC.
Not FDIC insured | May lose value | No bank guarantee