[market] momentum turning against growth stocks, don't panick

On Tuesday, Treasury Secretary Janet Yellen's comment that rate hike may be needed to stop the US economy from overheating sparked concerns around inflation expectation as well as rate hike. Although the Treasury Secretary subsequently clarifies her comment, damages seems to have been done to the market (link - Financial Times: Janet Yellen weighs into old territory on interest rates). Investors are getting worried about rates moves and inflationary problems. 

That dynamics in turn led to sell-off in growth stocks. If we look at the performance of S&P 500 growth index, it has underperformed its value counterpart (S&P 500 value index) by 7-8% already since the beginning of the year. 

Source: Bloomberg

Many of the high-flyers for much of the past 12 months are seeing some reversals, whether it is Tesla (TSLA), or Zoom Video Communications (ZM), or some of the new economy stocks in China such as Alibaba (9988 HK), Meituan (3690 HK) or Tencent (700 HK). One of the names that are being talked about is the Ark Innovation ETF (ARKK US) -- the fund managed by legendary Catherine Wood that surged by 150% in 2020, but is now down more than 10% in 2021 so far. Investors are increasingly buying protection (eg. pull options) on the ETF, which probably creates a negative feedback loop for not only the ETF itself but also some of its biggest holdings (link - Bloomberg: Cathie Wood's Ark Battered by Selloff in Stay-at-Home Darlings). 

To apply some contrarian thinking, this could actually be a good time to get more exposure to the growth names, especially those that have already corrected 30-40% from its peak earlier this year. After-all, these are the names with good growth potential, and as long as they can deliver earnings growth in the future, investors should come back to these names sooner or later. The only thing we have to be aware of is that, with the 10 year Treasury yield sitting at 1.6% right now, there are still room for upside movement in Treasury yields. So don't try to the "pick the bottom" on some of these growth names by going all in. 

Source: Bloomberg