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Airbnb guests in Los Angeles.
Courtesy of Airbnb
It’s time to take a more careful and discerning look at growth stocks.
Growth investing trounced value in the first quarter. The
Russell 1000 Growth
index added nearly 14% in the first three months of 2023, while the value slice of the market benchmark was practically flat. Growth stocks dominated value by the widest margin since the first quarter of 2020.
Nvidia
(ticker: NVDA),
Meta Platforms
(META),
Tesla
(TSLA), Advanced Micro Devices (AMD), and
Salesforce.com
(CRM) each returned 50% or more. The next set of gains may be less broadly based.
Much of those early 2023 gains have come thanks to the rising-tide-lifts-all-boats effect of falling bond yields. Investors are expecting an end to the Federal Reserve’s interest-rate increases, and futures markets are pricing in meaningful cuts by year end. The yield on the 2-year U.S. Treasury note has declined to below 4%, from an early March peak around 5.1%.
The predominant expectation among economists and professional prognosticators is for a recession in the U.S. as soon as in the second half of 2023—as recent banking troubles result in tighter credit conditions and the lagging effect of Fed rate increases is felt in the labor market.
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