During the coronavirus downturn and rebound, US growth stocks outpaced value stocks by a record margin. Now growth stocks seem expensive, but that depends on how you look at it. So are these trends likely to continue—and how should investors position across different equity styles?

US growth stocks surged for much of 2020. One of the most extreme examples is Apple, which is now worth more than $2 trillion. Through August 18th, the Russell 1000 Growth Index advanced by 23.4%, outperforming the Russell 1000 Value Index by about 34%. Over the 12-month period ending July 31, US growth stocks beat value stocks by a record margin, even more than the outperformance recorded before the dotcom bubble burst in 2000 (Display). Now investors are trying to figure out whether these market trends will persist amid challenges ranging from the battle against COVID-19, US elections and China-US tensions.

Sector Weights Fuel Performance

What’s behind these performance patterns? Each index is tilted toward different sectors/themes and not by design (Display, left). Currently, the growth index has very large weights in consumer discretionary and technology stocks. Meanwhile, the value index is heavily concentrated in cyclical sectors such as financials, industrials and energy—which are all facing acute challenges amid the coronavirus recession and other macroeconomic forces. As a result, its performance is often heavily influenced by government policies, the direction of oil prices (which are now stabilizing) and interest rates (which aren’t likely to rise for the foreseeable future).