The growth trade is back in vogue for now, Ned Davis Research says

CNBC

2 days ago

Investors should favor growth stocks over value stocks as normalcy returns to the market, according to Ned Davis Research. The Cboe Volatility Index (VIX) traded at around 17 on Thursday, far below the April 7 peak of 60.13. Heightened trade tensions sent the VIX surging in early April and the S & P 500 tumbling, with investors worried that higher tariffs would tip the economy into a recession. Since then, stocks have recovered sharply as President Donald Trump paused many of the levies unveiled on April 2. The S & P 500 is about 3% below its all-time high set in February. .SPX YTD mountain SPX in 2025 With these changes, Ned Davis thinks growth stocks — which trade on the expectation of strong earnings expansion over several years — should hold a more prominent spot in investor portfolios. "We are moving 5% from bonds to stocks in our U.S. asset allocation recommendation, bringing the weights to 60% stocks (5% overweight), 30% bonds (5% underweight), and 10% cash (marketweight). We are also shifting our style recommendation from neutral to favoring Growth over Value," Ed Clissold, the Ned Davis chief U.S. strategist, wrote in a note Wednesday. "At the beginning of the year, Mag 7 stocks, which tend to be classified as Growth, were facing slower earnings growth and high valuations. The correction removed Mag 7's relative overvaluation," he added. Most "Magnificent Seven" stocks were under pressure at the height of the tariff scare. Since then, most have staged strong rebounds. Take a look at the group's performance since April 2. Nvidia : +29% Meta Platforms : +18% Amazon : +6% Alphabet : +7% Apple : +9% Tesla : +17% Microsoft : +21% Still, Clissold warned: "One Truth Social post could change how investors feel [toward] risk-on and riskoff assets. The NDR Daily Trading Sentiment Composite, which is in the U.S. [Asset Allocation] Model, is neutral but close to its excessive optimism zone. The implication is that the market is more susceptible to the next piece of negative news."