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Stocks continued their late-August rally into September as ‘big money flows’ turned more positive, with index funds seeing continued inflows and major pension and sovereign wealth funds re-balancing their holdings towards stocks, away from bonds. While record low interest rates over the last decade had lead to continued gains in bond prices, they had also inflated the value of longer-term growth stocks as well as the ‘yield sensitive’ sectors such as utilities and real estate. The movements in these asset classes lead to a situation where the relative valuations between so-called ‘growth’ and ‘value’ stocks had become as distorted as they had been at the end of the technology boom/bubble in 2001. Traditional ‘value’ sectors of the market such as industrials, energy and financials tend to be more ‘economically sensitive’ than the ‘growth’ sectors of the markets, whose valuations are heavily impacted by the level of interest rates. The low interest rate, low growth environment of the past decade had fueled this record disparity between the two stock groups as investors discounted the future earnings of high growth companies such as Amazon, Netflix, Beyond Meat, Shopify and the Cannabis stocks at much higher rates. At the same time, the low growth environment lead to much lower valuations for traditional companies in the basic materials, financial services, retailing and industrial sectors. (more…)