Subject: Control Panel: Value vs. Growth
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Every investor has different motivations and risk tolerance. Investments of all kinds appeal to the different balance of greed and fear.

History shows that stock market bubbles often attract risk-tolerant investors (who may not realize the danger). They may project strong growth in future earnings. Speculators chase the growing stock price from Fear Of Missing Out. So-called “growth stocks” often have high Price-to-Earnings multiples. Many growth stocks do not pay dividends so the investors rely on other FOMO investors buying the stocks when they need to sell to raise cash.

More conservative investors, who may have studied history and even seen stock bubbles inflate and deflate during their own lifetimes, may prefer so-called “value stocks” with low P/E multiples. These often pay reliable, sometimes growing, dividends. Over years the dividends can repay the initial investment and the investor can sell when needed just like the “growth stock” investor.

The AI stock boom strongly resembles the 1999 internet build-out boom. Huge borrowing without near-term cash flow from customers. Very high P/E ratios. Companies booking profits from sales to other companies in the same build-out process.

The so-called “Mag 7” stocks rose so quickly that 30% of the SPX index was concentrated in those few stocks. This was a glaring danger. Anyone who can read a chart should be concerned.
Multpl
Shiller PE Ratio - Multpl

Shiller PE Ratio chart, historic, and current data. Current Shiller PE Ratio is 37.94, a change of +0.04 from previous market close.

Like a large flock of birds which takes off slowly, then faster, then all at once, investors have been gradually shifting from growth toward value stocks.

An important story this week was the run on “shadow banking” private-credit companies like Blue Owl. They do not mark their assets to market but instead to a “model NAV.” Investors are starting to mistrust this and want to withdraw their money. OOPS, sorry! The money’s loaned out and Blue Owl limited redemptions to 5% when redemption requests were 22%. This ain’t some money market fund, folks.

Because private credit has largely replaced traditional bank lending for mid-sized companies, a liquidity crunch here functions like a “clogged pipe” for the industrial and financial sectors. Industrial firms with debt maturing in 2026 may find the “private window” closed, forcing them into the public high-yield markets where spreads are widening toward the 10% danger zone. Zombie companies that have to roll over low-interest loans may default.

fred.stlouisfed.org
ICE BofA CCC & Lower US High Yield Index Option-Adjusted Spread

ICE BofA CCC & Lower US High Yield Index Option-Adjusted Spread

The transition of the Federal Reserve Chair from Jerome Powell to Kevin Warsh in May 2026 marks the end of the ‘Fed Put’ and the return of ‘Market Discipline.’ Warsh is strongly against QE and actually quit his job at the Fed in 2011 when Fed chair Ben Bernanke began QE2 in 2011. Warsh’s “Market Discipline” approach could be the pin that finally pops the Private Credit bubble because the bond market has been operating with a “Fed put” since Greenspan suppressed the fed funds rate long after the 2001 recession was over. That’s a whole generation of bond traders that has NEVER seen market discipline.

The 22% redemption request at Blue Owl last week is the market’s first attempt to exit a burning building where the door only opens 5%. For a generation of traders who have never seen a market without a safety net, market pricing without a “Fed put” will be a traumatic lesson in the inexorable nature of debt.

That will go double if the Fed refuses to back up accounts at regulated banks that exceed the $250,000 FDIC insured limit as they did at Silicon Valley Bank in 2023.

The Macroeconomic impact of impending stagflation and potential loan liquidity issues is dragging down growth stocks, value stocks and bonds together.

As energy prices rise due to the Strait of Hormuz closure, industrial companies face a double whammy: higher input costs and higher cost of capital. This is the textbook definition of a supply-side squeeze that the Federal Reserve cannot easily fix with interest rate policy. It’s a classic cause of recession. This may be why value stocks are declining.

https://www.wsj.com/finance/st...


One of the Stock Market’s Last Havens Is Now at Risk
Value stocks have outperformed growth stocks by the biggest margin in years

By Krystal Hur, The Wall Street Journal, April 5, 2026

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A rally in value stocks, which have outperformed growth stocks this year, is now threatened by the escalating Middle East conflict.

The Russell 1000 Value Index has fallen 4.3% since late February’s U.S. and Israel strike on Iran.

Value stocks began their ascendance months ago, with investors growing skeptical about the billions of dollars being funneled into AI technology.

One of the last places to hide from this year’s stock-market turbulence is in danger.

Value stocks, or shares trading at low multiples of their book value, have quietly marched toward a banner year. Now the war in the Middle East is threatening to upend the trade, leaving investors few places to find refuge from fears over everything from rapid advances in artificial intelligence to geopolitical conflict…

Some investors say they still expect big tech shares to outperform value stocks in the long run. Inflation has remained relatively steady, despite fears last year that Trump’s tariffs would send prices higher.

Earnings growth is also expected to be robust. Companies in the information-technology and communication-services sectors are expected to see profits jump by around 37% and 13%, respectively, this year, while industrials’ and financials’ earnings are projected to grow in the single digits… [end quote]

Again, it’s important to take a broader perspective on these earnings - how much of the IT and communication sectors’ earnings are circular and how much is reliable income from end-user customers?

The stagflation story is firming up as the attack on Iran and Iran’s closure of the Strait of Hormuz has caused the price of oil, fertilizer and helium to rise, along with the price of shipping all kinds of goods. Uncertainty is extremely high since it’s impossible to know from day to day what direction President Trump will push the attack on Iran.

The Cleveland Fed’s Inflation Nowcasting shows significantly higher inflation in 2Q26 with the Quarterly annualized percent change of CPI close to 5%.

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The Atlanta Fed GDPNow real GDP estimate for 2026:Q1 has dropped to 1.6%, a very rapid drop from early March.

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Total nonfarm payroll employment increased by 178,000 in March, and the unemployment rate changed little at 4.3 percent, the U.S. Bureau of Labor Statistics reported on Friday, 4/3/26.

Economic activity in the manufacturing sector expanded in March for the third consecutive month, say the nation’s supply executives in the latest ISM® Manufacturing PMI® Report. This correlates with an increase in manufacturing employment in the BLS report.

Economic activity in the services sector continued to expand in February, say the nation’s purchasing and supply executives in the latest ISM® Services PMI® Report. The Services PMI® registered 56.1 percent, its 20th month in a row in expansion territory. Services represent 80% of GDP so this is far from recessionary.

The overall economy continued in expansion for the 17th month in a row.

With higher-than-expected inflation and employment, the Federal Reserve will not cut the fed funds rate. The options market is betting on stable fed funds rate for the rest of 2026 with just as much probability that the FOMC will raise as that it will cut.

The negative trends from the past few weeks reversed slightly last week but this is probably noise from a short week of trading.

The Fear & Greed Index is still in Extreme Fear. The trade is still risk-off though stocks, bonds and even bitcoin had a tiny bounce. (Probably noise.) USD and gold had a slight bounce up. Oil fell slightly. These moves are probably noise.

The Chicago Fed’s National Financial Conditions Index (NFCI), which provides a comprehensive weekly update on U.S. financial conditions in money markets, debt and equity markets, and the traditional and “shadow” banking systems, shows that monetary conditions have been tightening since late February although they are still much looser than average. Financial stress is rising though it is still lower than average.

“Consumer sentiment fell back 6% this month to its lowest level since December 2025. Declines were seen across age and political party. Consumers with middle and higher incomes and stock wealth, buffeted by both escalating gas prices and volatile financial markets in the wake of the Iran conflict, exhibited particularly large drops in sentiment. Overall, the short-run economic outlook plunged 14%, and year-ahead expected personal finances sank 10%, while declines in long-run expectations were more subdued. These patterns suggest that, at this time, consumers may not expect recent negative developments to persist far into the future. These views are subject to change, however, if the Iran conflict becomes protracted or if higher energy prices pass through to overall inflation.” [end quote]

A Jewish aphorism says, “A fool can throw a stone in a pond that 100 wise men cannot get out.”

The ripples from this stone will propagate across the pond for many years. It’s impossible to say what consequences - intended and unintended - will result.

The METAR for next week is unsettled. The markets will probably be volatile and may not change much in the end. But the bias is toward negativity.

Wendy
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CandleGlance | StockCharts.com

Quickly and easily view and analyze mini-charts of up to 12 different symbols simultaneously, all displayed side-by-side on a single page
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CandleGlance | StockCharts.com

Quickly and easily view and analyze mini-charts of up to 12 different symbols simultaneously, all displayed side-by-side on a single page
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Dynamic Yield Curve | StockCharts.com

Visualize the relationship between interest rates and stocks over time using our draggable, interactive yield curve charting tool.
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Fear and Greed Index - Investor Sentiment | CNN

CNN’s Fear & Greed Index is a way to gauge stock market movements and whether stocks are fairly priced. The index uses seven market indicators to help answer the question: What emotion is driving the market now?
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National Financial Conditions Index: Current Data - Federal Reserve Bank of...
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St. Louis Fed Financial Stress Index

St. Louis Fed Financial Stress Index
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Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity, Quoted...

Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity, Quoted on an Investment Basis, Inflation-Indexed
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Surveys of Consumers
clevelandfed.org
Inflation Nowcasting

The Federal Reserve Bank of Cleveland provides daily “nowcasts” of inflation for two popular price indexes, the price index for personal consumption expenditures (PCE) and the Consumer Price Index (CPI). These nowcasts give a sense of where inflation...
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GDPNow

GDPNow forecasting model provides a "nowcast" of the official estimate prior to its release by estimating GDP growth using a methodology similar to the one used by the US Bureau of Economic Analysis.
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Nominal Broad U.S. Dollar Index

Nominal Broad U.S. Dollar Index
Bureau of Labor Statistics
Employment Situation Summary - 2026 M03 Results

https://www.cmegroup.com/marke...

https://www.ismworld.org/suppl...

https://www.ismworld.org/suppl...