After a rough start to 2024, Wall Street has regained momentum, with the S&P 500 touching a new record high last week. Strong corporate earnings, AI developments, a strong economy and renewed confidence in the tech sector fueled a rally in the stock market amid the delayed prospect of rate cuts. The gains have led to strong returns in the growth segment of the broad market.
The ultra-popular iShares Russell 1000 Growth ETF IWF has gained nearly 6% so far this year, easily outperforming its value counterpart iShares Russell 1000 Value ETF IWD, which delivered relatively flat returns. In fact, many ETFs in the growth space are hitting new highs. This is because growth funds generally tend to outperform during an uptrend.
Growth investing focuses on capital appreciation rather than annual income or dividends. It is a stock-buying strategy that aims to profit from companies that grow at above-average rates compared to their industry or the market. This is a more active attempt versus the value to build up the portfolio and generate more return on the capital investment. However, these funds offer exposure to stocks with growth characteristics that have comparatively higher P/B, P/S and P/E ratios and exhibit a higher degree of volatility, especially compared to value stocks (read: Time for Value ETFs as March Rate Cut Unlikely?).
Strong Market Trends
The data indicates a resilient economy, leading to risk-on trade but lowered expectations for rate cuts anytime soon. Inflation is easing, and the economy is improving. The personal consumption expenditure index - the Federal Reserve's preferred inflation gauge - rose 2.6% in December. This marks the third time that inflation is below 3%. Meanwhile, the economy grew at a much more rapid pace than expected, with GDP rising at a 3.3% annualized rate in the fourth quarter of 2023, up from the Wall Street consensus estimate growth rate of 2%.
The labor market has also shown strength as job growth accelerated in January, and wages increased the most in nearly two years. The economy added 353,000 jobs in January. The unemployment rate was unchanged at 3.7%. Consumer confidence in the economy hit its highest level in more than two years, according to the latest surveys released by Gallup and the Conference Board (read: Forget Rate Cuts, Buy Top-Ranked Sector ETFs).
Strong corporate earnings are also driving the stock market higher. Total Q4 earnings for the 230 index members that have reported so far are up 4.2% from the same period last year on 2.8% higher revenues, with 81.3% beating EPS estimates and 63.9% beating revenue estimates. Earnings and revenue growth rates are tracking above the last two reported quarters, while EPS and revenue beat percentages are roughly in line with the recent and historical periods.
ETFs in Focus
That being said, we have highlighted some ETFs that are scaling new highs and have easily crushed IWF in the year-to-date timeframe.
Invesco Large Cap Growth ETF PWB - Up 9.6%
T. Rowe Price Blue Chip Growth ETF TCHP - Up 8%
Fidelity Blue Chip Growth ETF FBCG - Up 7.6%
SPDR Portfolio S&P 500 Growth ETF SPYG - Up 6.8%
iShares S&P 500 Growth ETF IVW - Up 6.8%
Vanguard S&P 500 Growth ETF VOOG - Up 6.8%
iShares Russell Top 200 Growth ETF IWY - Up 6.7%
iShares Core S&P U.S. Growth ETF IUSG - Up 6.4%
Schwab U.S. Large-Cap Growth ETF SCHG - Up 6.3%
Vanguard Mega Cap Growth ETF MGK - Up 6.3%
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