Macro Minutes: Large Growth vs. Small Value

Key Points

• Small value tends to lead early in bull markets, as the economy typically experiences the most rapid profit growth as it bounces out of recession. Conversely, large growth tends to lead late in bull markets, as the pace of profit growth decelerates, meaning equity gains are more driven by future expectations.
• The March drawdown behaved more like a severe correction that began with a rapid decline, and then developed a v-shaped formation in the subsequent recovery. Breadth further narrowed, which is a phenomenon more frequently occurring in market corrections rather than bear markets. Following similar historical occurrences, market leaders going into the correction generally continue outperforming in the subsequent recovery.
• Forward relative returns for growth has been favourable as the yield curve is flat.