According to Lisa Shalett, Chief Investment Officer, Wealth Management at Morgan Stanley, growth stocks’ recent outperformance has investors wondering if the long-awaited value rebound has already faded. However, some fundamental trends suggest otherwise.
“If long-term rates rise again, growth stocks may face pressure since the value placed on future profits and dividend streams will be discounted more heavily in share pricing models. While technical considerations may keep rates low in the short term, we believe they will eventually rise.”
“Our forecast for higher rates and a steeper interest-rate curve in the coming 12 to 18 months is based on a positive outlook for capital spending, a healthy housing market with multiplier effects for economic growth, and inflation from rising earnings and rents. We expect quicker and broader growth in this business cycle, fuelled in part by fiscal stimulus, improving demographics as millennials approach higher-spending years, and a resumption of credit growth.”
“As interest rates rise in response to forecasts of faster growth and inflation, many investors become more quality- and value-conscious, while also becoming more wary of rate-sensitive investments. We propose increasing your exposure to large-cap financials.”/n
