by Gary Alexander

March 12, 2024

This column is called “Growth Mail,” so I tend to focus on economic growth, but once or twice a year I also crow about the continued strength of Growth stocks over Value stocks. My compatriot Jason Bodner charts them weekly, and this week he compares the various Russell capitalization compartments over the last 19 weeks, since the latest market bottom on October 27, 2023, up to Friday’s close, March 8, 2024:

Russell Index Table

Jason also points out that the traditional S&P 500 growth sectors are leading the overall index forward, with the #1 performer being Information Technology (+34.8%), followed by Communications Services (+29.3%), with the PHLX Semiconductor index doubling those 29.3% gains at +58.7%. Meanwhile, value and income sectors trail the pack: Utilities (+7%) and Energy (+3%), due in part to seasonal factors.

I’d like to take Jason’s research a step further back to the start of this latest bull market, which began about a month before the 2022 mid-term elections, with a market bottom set on October 12, 2022. I’ll compare the Russell 1000 big-cap stocks to the Russell 2000 small-cap stocks, as two different universes:

Russell Index Table 1

The big story here is the 58.6% surge in the Russell 1000 Growth – led by the Magnificent 7 (now 8), which more than doubled the 26.8% rise in the Russell 1000 Value over the last 17 months. If you think I might be cherry-picking some special time of post-COVID recovery in growth vs. value, growth took off in the Trump years, leaving value in the dust, and this trend has continued now for the last seven years.

IWD vs IWF Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

With such lofty gains in short order (+25% in 19 weeks), some pundits are talking about a bubble market. But despite the S&P 500’s 44% rise since October 12, 2022, reaching a new high last Friday, that index is still barely 7% above its previous cyclical high on January 3, 2022, so this doesn’t look like a bubble yet.

The traditional growth sectors dominate the S&P’s gains since October 12, 2022: #1-Information technology (+86.8%) and #2-Communications Services (70.2%) are the leaders, followed by other traditional growth sectors, #3-Industrials (+43%), #4-Consumer Discretionary (+36%), #5-Financials (+33%) and #6-Materials (28%), but the market’s breadth is much wider now. The ratio of the equal-weighted S&P 500 to the market-cap-weighted S&P index is down from 1.52 at the start of 2023, to 1.29 now (that’s where it was in 2010, at the start of the last mega-bull market), so this sea floats most boats.

Now, let’s turn to that other type of growth – Economic Growth – starting with some Truth Serum.

Some Truth Serum on the Economy, Taxes and Deficits Since 2020

Like a dutiful citizen, I watched (and even listened to) the State of the Union address, with the script text next to me (for “the hard of hearing” and slow of believing). I know it’s just politics, but for someone like me, who knows all the numbers, it’s difficult to hear so many twisted statistics in one long, painful hour.

I’ll limit myself to just three quotes. Let’s start with economic growth:

Biden Speech 1

Well, it seems to me that the Great Depression happened in the last century (1929-41) but, putting that “worst economic crisis in a century” aside, the third and fourth quarters of 2020 (Trump’s final quarters) produced a 33% bounce-back third-quarter growth rate, and then a more realistic +4.1% GDP growth rate in the fourth quarter of 2020, followed by a robust +6.5% first quarter of 2021, with a low 1.4% inflation rate. That’s hardly inheriting an “economy on the brink,” but in his first full month in office, Biden passed a hugely inflationary “stimulus” bill in February 2021, which even his uber-Democratic economist ally, Lawrence Summers, rightly said it would “set off inflationary forces we haven’t seen in a generation.”

This caused high inflation and, by extension, a punitive rise in interest rates, which still haunt us.

Biden Speech 2

Before the Tax Cuts and Jobs Act of December 2017, the top 1% of taxpayers (“the very wealthy”) paid about 38% of all income taxes and the bottom 95% of taxpayers paid around the same. Far from favoring the rich, the 2017 bill favored the middle class and poor, punishing the rich. As of 2021, the top 1% of taxpayers (1.53 million filers) paid 45.8% of all income taxes, while the bottom 95% paid only 34.4%. Translated, that means the rich paid 20% more taxes and the middle class and poor paid about 10% less.

Tax Revenue ChartGraphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Corporate tax collections are more complex, but they are also sharply on the rise. Prior to the 2017 tax act, corporate tax rates were as high as 39%, but the 2017 bill reduced rates to a flat 21%.  Tax collections remained flat at first, on a plateau around $250 billion per year, before and after the tax bill passed, but revenues rose to over $420 billion per year since 2021 and are expected to top $550 billion this year.

Biden Speech 3

 This isn’t just a little bit false. It’s a whopper. Even the Biden-friendly Washington Post gave this line a “bottomless Pinocchio” for its audacious bending of the facts. There was a huge $3.13 trillion deficit in 2020 to fund employees and businesses forced to close, so naturally the 2021 deficit would be lower, but you need to calculate deficits against baselines. The baseline deficit over 10 years, as measured when Biden came into office versus the latest forecast, shows nearly $6 trillion added to the debt since Biden was elected. This is how the Congressional Budget Office (CBO) measures deficits on the Biden baseline:

Gross Federal Debt ChartGraphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

 To his credit, the President down-sized this falsehood. He used to say he cut the deficit by $1.7 trillion.

At least his fibs are subject to shrink-flation.

All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
Measuring the Bull Market by the Numbers

Sector Spotlight by Jason Bodner
Where is the Market Headed Next?

View Full Archive
Read Past Issues Here

About The Author

Gary Alexander

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander

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