While reviewing my emails, I came across another interesting short post by Denise Chisholm from Fidelity Investments. Denise is undoubtedly one of the sharpest minds in the field.
Here is a section:
The recent buzz around a certain AI company is another reminder of how technological advancements shape markets. While I’m not tech expert (I can barely use Zoom), history suggests that innovations that drive cost efficiency tend to be net positives for the market and the overall economy.
Of course, individual winners and losers emerge, but often what matters most for investors is context especially valuation starting points. Take growth stocks in the S&P 500. While technology stocks as a sector may still screen expensive, the highest growth companies in the index are nowhere near the valuation extremes of the dot-com era.
More importantly, they now sit in the cheapest third of their historical valuation distribution. That is significant historically, when growth stocks are expensive, growth has tended to underperform value. But when they are cheap like now they have tended to outperform. So, while individual tech names may be volatile amid the latest headlines, the broader setup for large cap growth stocks should have more valuation support than you might think.
Contrast this with small caps. The further down the cap spectrum you go, the less valuation support growth stocks have. In the S&P 600, growth stocks are actually expensive.
