Growth stocks will come back sooner than expected and here is why.
JP Morgan’s asset management in there most recent growth trends paper has predicted that due to high PE ratios and valuations there likely will not be good returns with many US companies over the next 5 years. They think better returns will be had overseas on average. And, that after vaccine rollouts the best performing sectors will be in recovery and value for the next 5 years. Essentially JP Morgan is predicting a dotcom bubble situation today and a 5 year drought in US growth and tech. One of the more bearish reports out there. The following are why 2021 is not 2000 dotcom. And, that during times of uncertainty you’d make more money running with the bulls than hiding as a bear. Obviously, keep in mind, risk management is different near retirement than in your 20’s.
The simplest answer to why growth stocks will return stronger than ever and it will happen far sooner than 5 years is that they simply have to. US tech growth sector stocks are practically the number one export of the United States. All jokes aside if growth in the US stagnates for 5 years it may as well stagnate for 10 years, because there will be far greater problems in the US economy than just stock market portfolios. If US tech companies stay stagnant while foreign tech competitors thrive why invest in US companies at all, ever? Tech and consumer discretionary are the bread and butter of the US economy. It is so vital to the US economy that a 5 year drought is simply not something the FED nor Washington can let happen.
Speaking on the dotcom comparison. Technology today is simply not as archaic as it was 20 years ago. Valuation and PE ratios are high. But, the base assets are not the same. Amazon is no longer a bookseller based in a Bellevue, WA garage. Even at the startup ground level todays companies on the rise are so indistinguishable from those of the dotcom it is impossible to even compare. We don’t need to delve to deep in how incomparable tech in 2021 is to tech in 2000.
Although value investments are on the rise and growth stocks on the decline in the short term. Over the past decade any long term investment in value over growth would have paled in comparison. How long are people going to store there money in value really? Telecom, airlines, banking, etc. are all great investments today as they are recovering from 2020 woes. But, that does not change the fact that telecom was just ousted from the streaming wars in disgrace. Tech along with the big movie studios has successfully done what telecom failed to do in streaming. There are virtually no new products telecom has to sell over the next 5 years other than fake 5g. Airlines will still be facing the work from home and zoom trend. Not to mention rises in top down government mandated health related travel restrictions. Banking is still under attack by fintech. Millennials today have more money in digital wallets than they do banks. And, banks have nothing special to offer the next generation.
In conclusion, I’ll say it again: Growth stocks will rise again. Because, growth stocks have to rise again. Because, if they don’t and JP Morgan Asset Management is right we are in for far more problems in the US than just a 5 year tech drought.
