U.S. GROWTH STOCKS
Shares should continue being in vogue on improving earnings outlook, says analyst
DON’T look for the outperformance of growth stocks to fade any time soon, as long as corporate earnings continue to improve and hopes remain for stronger economic growth.
The Russell 1000 Growth index, which tracks such shares, is up 10.9 per cent so far this year, outpacing the United States benchmark S&P 500 stock index’s 6.6 per cent rise and the 2.8 per cent advance of the Russell 1000 Value index.
And it’s not just a US phenomenon. Growth stocks — whose profits are expected to grow at a faster pace than the broader market — are also outperforming their value counterparts in Asia and Europe.
Still, the appeal of riskier stocks perceived as better positioned to ride an accelerating global earnings tailwind, as opposed to those with a greater cushion of safety, is nowhere as far ahead as it is on Wall Street.
In the US, an improving outlook for corporate earnings should help keep growth names in vogue, according to John Praveen, chief investment strategist at Prudential International Investments Advisers LLC in Newark, New Jersey.
The average estimate of analysts for earnings per share growth this year of S&P 500 companies has risen to 11.3 per cent from 10.9 per cent at the start of the month, Thomson Reuters data showed, a trend that should continue to blunt concerns about lofty growth valuations.
“When you have an earnings recovery, growth stocks will outperform.