The Most Extreme Growth-to-Value Ratio in Two Decades

The "blueprint" of the 1990s Melt Up has held true...

Tech stocks are leading the market higher. Investors are chasing big gains. And it has gotten to the point where hedge funds are turning new money away, as I explained yesterday.

Investors have once again left boring value stocks in the dust.

Following the late '90s playbook has worked out for investors too. The same sectors that took off back then are soaring now...

I'm talking about tech stocks, semiconductors, and just about anything else that's exciting and high growth.

You want to own these growth sectors as long as the Melt Up continues. But the blueprint from last time around shows that this won't last forever.

Investors have left boring value stocks in the dust, just like they did in 1999. And just like back then, that trend is almost certain to reverse at some point.

Let me explain...

The gap between growth and value stocks spiked during the final inning of the dot-com Melt Up. You can see this in the chart below. It shows us the growth-to-value ratio of the market...

To get this measure, we simply divide the S&P 500 Growth Index by the S&P 500 Value Index. When the ratio is rising, it means growth stocks are crushing value. And that's exactly what happened as the 1990s Melt Up peaked. Take a look...

The dot-com era was all about growth. Many of the companies behind these stocks didn't even have real business models. But that didn't stop investors from bidding up shares in the hopes of making incredible gains.

That led to huge rallies in high-flying sectors during the dot-com boom. Growth stocks crushed value. But then, the ratio peaked in early 2000... right as the Melt Up was coming to a close.

This is how market cycles work. One part of the market will outperform for years. And then, just when investors think that outperformance will last forever, it flips.

From 2000 through 2008, the ratio turned in favor of value. Take a look...

The growth decade was over. The boring value stocks that were left behind in the late 1990s came roaring back.

This drove the ratio down for most of the 2000s. It went from an all-time high in 2000 to an all-time low in 2007.

That cycle wasn't going to last forever, though. Growth stocks would eventually outperform value again. That's what we've been seeing over the last decade or so.

From 2009 until now, growth has been leading the market. And the gap between growth and value is back at an all-time high. Check it out...

You can see that the growth-to-value ratio shifted into high gear in 2020. We are now near the ratio's all-time high going back more than 20 years.

The surge we're seeing today is eerily similar to what we saw in 1999... as the Melt Up was nearing its final peak.

We are likely close to another turning point in today's market. The ratio is near all-time highs, like it was in late 1999. And that means a snap back to value is certain.

We can't know exactly when that will happen... But we know the Melt Up won't last forever. And when it ends – and a Melt Down takes hold – value stocks could save your portfolio.

We're not there just yet. But this market cycle is inevitable. Don't forget that when the good times finally end.

Good investing,


P.S. Last night, my colleagues and I revealed what we see in the markets... And I shared an important update to my Melt Up thesis. It's bigger than I can cover here. In short, taking one step now could not only help you avoid catastrophic losses during the Melt Down... but it could also help you stay in the stocks that still have room to run. If you want to find out more, check out the video of our talk right here.

Further Reading

Inflation is causing prices to rise... and some folks are terrified. And when fear rules the market, investors often turn to gold or real estate. But this type of stock can also flourish when people turn bearish... Read more here: The Best Stocks to Own When Inflation Absurdity Strikes.

"Are you worried about where the stock market is headed next?" Mike DiBiase asks. If you think a market crash seems likely, you can still make equity-like returns while protecting your downside... Get the full story here: Add This 'Crash Proof' Technique to Your Investing Toolbox.

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Finding value in the markets goes beyond good companies. Opportunities tend to arise in markets or sectors that folks leave for dead after a major crash...

Market Notes


Today's company is thriving as COVID-19 travel restrictions ease up...

Delta variant cases are still a concern. But as vaccines continue to roll out around the world, more folks have been getting out of the house... and going on long-delayed vacations. People who've been stuck indoors are ready to safely travel and relax. That's good news for today's company...

Hilton Worldwide (HLT) is a $40 billion hotel giant. It has more than 6,500 properties in 119 countries and territories... with popular brands that include the Waldorf Astoria, Embassy Suites, and its flagship brand, Hilton Hotels & Resorts. As more people get vaccinated, Hilton has made sure it's ready for more travelers... In the most recent quarter, Hilton opened 119 new hotels, totaling more than 19,800 rooms. And 99% of Hilton's system-wide hotels are now open.

As you can see, shares of HLT have taken off. They're up more than 145% since their March 2020 lows. And they recently hit a fresh all-time high. As more folks make up for the trips they couldn't take last year, this uptrend should continue...