by Liz Ann Sonders, Chief Investment Strategist, and Kevin Gordon, Charles Schwab & Company Ltd.
Leadership shifts at the sector and style levels warrant some additional caution, as well as a closer look as to what investors are buying when it comes to "growth vs. value."
A stronger defensive line
![Tech and Communication Services rank poorly when it comes to the percentage of members reaching a new eight-week high relative to the percentage reaching a new eight-week low.](https://www.schwab.com/learn/sites/g/files/eyrktu1246/files/050123_A_Sector%208%20Week%20Highs%20vs.%20Lows.png)
Source: Charles Schwab, Bloomberg, as of 4/28/2023
Past performance is no guarantee of future results.
The (equal weight) Tech wreck
All else is not equal
![The equal weighted version of S&P 500 Information Technology has fallen to its lowest relative to the cap weighted version in several years—undercutting the September 2020 low.](https://www.schwab.com/learn/sites/g/files/eyrktu1246/files/050123_B_Tech%20Equal%20Weight%20vs.%20Cap%20Weight.png)
Source: Charles Schwab, Bloomberg, as of 4/28/2023
Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly. Past performance does not guarantee future results.
The growth and value conundrum
Russell is the stronger quarterback
![The Russell 1000 Growth Index has outpaced the Russell 1000 Value Index by a solid margin this year (nearly 15%). Yet, S&P 500 Growth's gain relative to that of S&P 500 Value has been much weaker at 5%.](https://www.schwab.com/learn/sites/g/files/eyrktu1246/files/050123_C_Russell%20vs%20SP%20YTD%20Performance.png)
Source: Charles Schwab, Bloomberg, as of 4/28/2023
Data indexed to 100 at 12/31/2022. An index number is a figure reflecting price or quantity compared with a base value. The base value always has an index number of 100. The index number is then expressed as 100 times the ratio to the base value. Past performance is no guarantee of future results.
A quilt of a different style
- 13.7% in S&P 500 Pure Growth (third place)
- 33.8% in S&P 500 Growth, a bit of a distance from 41.6% in Russell 1000 Growth
- 16.8% in S&P 500 Value (second place)
It's not what you think
![Chart shows the various Growth and Value indexes from S&P and Russell, with each square representing the various sectors' weights in each index.](https://www.schwab.com/learn/sites/g/files/eyrktu1246/files/050123_D_Growth%20and%20Value%20Quilt.png)
Source: Charles Schwab, Bloomberg, as of 4/28/2023
Sector weight is comprised of the following 11 GICS sectors: Consumer Discretionary Sector, Consumer Staples Sector, Energy Sector, Financials Sector, Health Care Sector, Industrials Sector, Information Technology Sector, Materials Sector, Real Estate Sector, Communication Services Sector, and Utilities Sector. Numbers may not add up to 100% due to rounding. Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly.
- There are the growth- and value-labeled indexes (and their at-times stark weighting differences, like today).
- There are the pre-conceived notions of what are growth stocks and what are value stocks.
- There are the actual factors (or characteristics) of growth and value.
Conventional wisdom might suggest that Tech should automatically be associated with growth—and that the stocks generally only live in growth indexes. However, that is clearly not the case in S&P 500 Pure Growth, which now has Energy as the heaviest weight, followed by Health Care; leaving Tech in third place. Conversely, a value-oriented investor wanting to shun Tech might look to S&P 500 Value as an obvious choice, but Tech is now the second largest sector in that index.
Not your parents' growth and value
Less growth, more value
![The number of stocks in S&P 500 Growth has steadily declined from a peak about a decade ago. Conversely, the number of stocks in S&P 500 Value, while off the peak, is still quite high relative to history.](https://www.schwab.com/learn/sites/g/files/eyrktu1246/files/050123_E_SP%20Growth%20Value%20%23%20of%20Stocks.png)
Source: Charles Schwab, Bloomberg, as of 4/28/2023
A shrinking pool of growth and value
![Within the S&P 500, the number of stocks with a defined growth factor has remained relatively unchanged for more than a decade; while the number of stocks with a defined value factor has declined more dramatically.](https://www.schwab.com/learn/sites/g/files/eyrktu1246/files/050123_F_Defined%20Growth%20Value%20%23%20of%20Stocks.png)
Source: Charles Schwab, Bloomberg, as of 4/28/2023
Growth stocks are defined as those with 5-year average sales growth above 15%. Value stocks are defined as those with a price-to-sales ratio below 1.