Growth stocks led bull, now lead volatility

Investors shrugged off soaring prices; value stocks left behind

NEW YORK — As stocks hit record after record in the past decade, investors didn’t much care if a stock was cheap or expensive. What mattered most was: Is it growing quickly?

Investors they were willing to pay premium prices for an Amazon or a Netflix. Left behind were stocks in more staid industries, even if they looked like better bargains by several measures.

Suddenly, though, the siren song of high growth has gone dissonant. As markets tumbled in recent weeks, the stocks that were soaring the highest have fallen the fastest. Worries about interest rates and global trade are raising concerns about the companies’ future growth. Plus, high-growth stocks had further to fall given how much more expensive they had grown versus the rest of the market by various measures.

So far this month, high-growth stocks in the Russell 3000 index have sunk 9 percent, versus 6.5 percent for their lower-priced counterparts known as “value” stocks, as of Wednesday.

If the long run of dominance is indeed over for growth stocks, the stakes could be huge. It would mean pain for investors who went all-in on the sexy, high-flying stocks that so dominated cocktail-party conversations.

Even investors with more-vanilla index funds would take a hit. The supercharged performance for high-growth stocks means companies like Amazon, Facebook and Google’s parent have swelled in market value. Those three, plus Apple and Microsoft, make up more than 15 percent of the S&P 500 index by themselves.

Perhaps more ominous is the market’s track record. The last two times the pendulum swung sharply between dominance for value and growth stocks occurred around two of the most dramatic implosions in the stock market’s history: the 2000 dot-com crash and the 2007 onset of the Great Recession.

On Thursday, growth stocks once again led the way as the market clawed back some of its losses from the last few weeks.

But many investors nevertheless see a reversal as inevitable, simply because high-growth stocks have become much more expensive than value stocks.

AP PHOTO/MARK LENNIHAN, FILE A Nasdaq employee monitors market activity. Stocks like Amazon and Netflix were able to command premium prices over the past decade.