Wall Street Week Ahead: U.S. value stocks are threatened by recession fears

• The Russell 1000 Growth index (.RLG) has decreased by roughly 26 percent, while the Russell 1000 Value index (.RLV) has down by about 13 percent so far this year.
• Because growth stocks are more vulnerable to increasing interest rates than other asset classes, this had a greater negative impact on them than on other asset classes.
• BofA Global Research, the most recent Wall Street bank to predict an impending recession, reduced its year-end target price for the S&P 500 on Thursday from 4,500 to 3,600.

Value stocks, which have outperformed broader indices this year in the face of growing inflation and rising interest rates, are under threat from worries of a probable economic recession.

Value stocks typically underperform their growth counterparts over the past ten years, when the S&P 500’s (.SPX) gains were driven by tech-focused behemoths like Amazon.com Inc (AMZN.O) and Apple Inc. Value stocks are typically defined as those trading at a discount on metrics like book value or price-to-earnings (AAPL.O).

This year, that dynamic changed as the Federal Reserve began its first round of interest rate increases since 2018, which harmed growth stocks more than other asset classes since they are more susceptible to rising interest rates. The Russell 1000 Growth index (.RLG) has decreased by roughly 26 percent, while the Russell 1000 Value index (.RLV) has down by about 13 percent so far this year.

This year, that dynamic altered when the Federal Reserve started the first round of interest rate hikes since 2018. Because growth stocks are more vulnerable to increasing interest rates than other asset classes, this had a greater negative impact on them than on other asset classes. So far this year, the Russell 1000 Growth index (.RLG) has fallen by around 26%, while the Russell 1000 Value index (.RLV) has fallen by about 13%.

One illustration of how investors are modifying portfolios in anticipation of a probable U.S. economic collapse is the emerging shift toward growth equities. BofA Global Research, the most recent Wall Street bank to predict an impending recession, reduced its year-end target price for the S&P 500 on Thursday from 4,500 to 3,600.  the index reached a close of 3,863.16 and is down 18.95% for the year.