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It is all about stock selection

It has been a challenging year for all investors and, in particular, for growth investors. The declines in the growth area have been broad-based and all-encompassing across large, mid-cap, small-cap, domestic, and international.

The S&P Large Cap Growth Index (SGX) has plummeted 28.2% from its Dec 2021 all-time high as of November 16, while the S&P 500 (SPX) declined by 17.84%, and S&P Large Cap Value Index (SVX) fell by 8.70% during the same period.

Are the highfliers returning to normal?

Does the sharp setback this year in many growth stocks create attractive entry points?

Or will there be another round of selling before the final bottom?

During the market selloff this year, the high-flying speculative technology stocks were hit the hardest. Many retail and professional investors sold out of the once favored but crowded names with promising explosive future growth but with questionable and sustainable business models.

So, where have all of the money gone?

Investors appear to have shifted toward defensive, low-volatility, high-income, and value-related stocks.

Are some of these defensive and income names becoming too expensive?

Are investors now paying a premium for safety that could quickly reverse direction if market trends shift again?

Although growth stocks may be more attractive today than they were a year ago, the macroeconomic, geopolitical, and market conditions remain challenging.

Rising inflation and further interest-rate hikes can continue to pressure growth stocks as they are disproportionately affected. Also, if a deep recession occurs, almost all will decline.

So, what do you do in this market environment?

It is much harder to find and generate consistent returns because of the dominant and prevailing bearish trend.

A balanced and diversified portfolio can help to minimize losses. However, market outperformance still depends heavily on successful stock selection as it has become a stock pickers market environment.

Focusing on names with solid business models, dominant positions in the industry, and favorable risk/reward profiles may help investors outperform, at least against benchmark indexes.

Enclosed is an updated list of potential leadership names by S&P sectors.

Source: Chart courtesy of

Source: Chart courtesy of

Source: Chart courtesy of

Source: Chart courtesy of

Source: Chart courtesy of

Source: Chart courtesy of

Source: Chart courtesy of

Source: Chart courtesy of

Source: Chart courtesy of

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