In the aftermath of a recession, why value stock tends to outperform growth stock?
After a recession business activity is slow and often interest rates are lowered to help stimulate economic growth again. Value stocks can acquire financing at a lower cost so they can borrow cheaper and thus fund their growth cheaper so that leaves more money for them (dividends or reinvested into profitable growth opportunities) after paying expenses and financing costs. Growth stocks because they are riskier have higher costs of borrowing so they won’t be able to have significant amounts of money left over after paying expenses and financing costs.
Additionally since value stocks have withstood the test of time are typically better to survive recessions so people invest in them to secure a solid dividend, relatively stable cash flow, etc. While with growth stocks they’re more volatile and people won’t invest in them until the economy starts to pickup again as in tough economic times people don’t have high disposable incomes to put into potentially poor growth stocks.
But why small company is outperform big company and cyclical stock is outperform non cyclical stock? aftermath of a recession
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I noticed this couple of weeks ago when I was doing TT and EOC…
I don’t think the question mentions an inflection point so there was no sign of recovery in the economy.