Growth Stocks Resilience: Why They’re Beating the Market in 2024

New York, NY – Stocks have shown resilience so far this year against the backdrop of rising interest rates and tempered expectations for monetary policy easing. Despite facing higher rates, the market has continued to perform well, especially within the realm of growth stocks. This year’s environment differs from that of two years ago, with a more gradual increase in rates and a more positive economic outlook.

In 2022, growth stocks experienced significant challenges, with the Russell 1000 Growth Index falling around 30% compared to declines of 20% and 10% in the S&P 500 and Russell 1000 Value Index, respectively. Fast forward to today, the Russell 1000 Growth Index is up nearly 11%, outperforming the market and value stocks. The difference in performance can be attributed to various factors, including a more restrained increase in interest rates this year.

In 2022, 10-year yields surged significantly, from approximately 1.5% at the beginning of the year to a peak of around 4.5% in October. However, this year has seen a more controlled uptick in rates, with 10-year yields rising by 50-60 bps. Another notable difference is the reduced volatility in rate movements this year compared to the turbulence experienced in 2022.

The economic landscape has also played a crucial role in the market’s resilience. In 2022, investors were concerned about a potential recession fueled by Federal Reserve actions. Today, the Fed is considering interest rate cuts, and economic growth estimates have improved. Economic growth estimates for 2024 have risen from 1.3% in January to 2.4% currently, indicating a more robust economic backdrop.

Investors are now looking towards large-cap growth companies that are well-positioned to benefit from key trends like artificial intelligence (AI) and other growth themes. These companies are seen as having resilient balance sheets and are expected to lead the market in the current environment. Maintaining an overweight position in segments tied to secular growth themes, particularly those related to AI advancements, is recommended for investors in this market environment.