I get asked all the time, “will growth stocks go up again?”
The short answer is yes. The long answer is yessssssssssssss.
Today’s message is simple: Growth stocks will rally again.
But, before we discuss growth stocks, let’s first note how choppy this market’s been. One day tech rips and the next it dips. One week value screams only to get creamed. As we’ve said before, 2021 is full of nasty sector rotations.
The last few days have been no different. Scary headlines of rampant inflation and rising interest rates give fast-money traders the jitters. High-quality growth stocks get punished in this type of manic market.
On the flip side, Energy stocks have been revered. We’re in wild times indeed.
So, the question you may be asking yourself is will growth stocks rally again?
We unequivocally believe so…and sooner than most imagine. But first let’s view our latest Big Money data for clues on what’s next.
Let’s get to it.
Big Money Index May Have Troughed
If you want to know the flow of money in stocks, just check on the Big Money Index (BMI). It’s gone virtually nowhere since February.
And one look at the Russell 2000 (IWM ETF) tells us why. Small-cap stocks have lived in a ~10% range since February:
The last week however has positive vibes, though. Selling has been slowing. When sellers dry up, it paves the way for buyers to take over.
Below you can see shorter red bars. That’s signaling less pain for growth and tech…the areas feeling the most heat. Also, I’ve flagged big green bars…that’s mega buying in Energy stocks:
I’m signaling the level of Energy buying for a reason. It’s super extreme. In fact, Monday showed the most buying in Energy stocks in the past 7 years.
Juice is good. But too much juice will make you sick.
When data pops off the chart like this, take notice. Looking back at similar days with monster buying there’s a pattern. Buying of this magnitude generally means to prepare for a pullback.
Monday saw 82% of our Energy universe flag a buy signal. Here are prior days with 50%+ buying in the sector. Off to the right you’ll see that XLE (Energy Select Sector SPDR Fund) tends to pullback a month later after such an event:
Who knows if this will be the case this go round. But, we’re in the camp that the time to buy Energy stocks has likely passed.
So, what does this have to do with growth stocks? Well, the last 2 days showed a significant slowdown in Energy buying, indicating portfolio managers are likely going to look elsewhere for the next ramp.
That’s why our data suggests growth stocks will rally again.
Let’s look.
Growth Stocks Will Rally Again
Each week we take all of our stock buys and sells and rank them by fundamentals. Since we’ve been doing this process for years, we can guess what’ll make the list.
Last week’s list was full of Energy stocks and very few growth stocks. That’s because most growth and tech stocks were getting sold, while Energy stocks led the buying.
Looking at this week, we’re already seeing signs that growth stocks will rally again. Yesterday in particular had a handful of top growth names getting the juice.
And that means there’s a big chance that our Top 20 report will have solid growth names at the top. If history is any guide, many names could race higher.
Remember back in May when growth stocks had a scare? We do. And we noticed then that growth stocks are climbing back. And they did.
Here’s the performance of our MAP 50 released back in May:
Notice the mega ramp from May – July. Now, we can’t guarantee that’s going to happen this go round. But, the data certainly tells me that growth stocks will rally again.
Let’s wrap this up.
Here’s the bottom line: Rotations are the name of the game for stocks. Energy buying has been epic and will slow…paving the way for growth stocks to rally.
The setup looks similar to May. And that means that the juice is gonna be well worth the squeeze!
Bring on the squeeze baby!
***As a bonus, Jason made a killer video: Best ETFs for October 2021. If you want to learn how we do what we do, check it and subscribe.
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And if you’re wanting even more. Luke and Jason are presenting How To Find the Best Stocks to Buy Now at the Wealth365 summit next Tuesday at 2pm. Mark your calendars for and tune in virtually.
You can bet the guys will discuss some of their favorite stocks right now.
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Best ETFs for October 2021
