Stealth Buying in Growth Stocks

The major market indexes found support and recovered from what looked like, as of midday, a clear sell-off. This action seems to indicate that, despite the S&P 500 Index (SPX) closing nearly 0.25% lower for the day and the Nasdaq 100 (NDX) and Russell 2000 (RUT) indexes shedding even more from their price, that buyers are entering the market looking for relative bargains. It appears to be the first of three pieces of evidence after yesterday’s action that investors are likely to remain calm in the days to come. 

The Volatility Index (VIX) fell to unchanged just after the market closed. With the 0.25% drop in the S&P 500, the VIX would be expected to rise slightly. It did by market close, but that light and delayed reaction is the second piece of evidence that investors are not in a hurry to sell out their shares of stocks. The final piece of evidence comes from the fact that growth stocks, as measured by relative performance between two exchange-traded funds SPDR S&P 500 ETF (SPY) and SPDR Portfolio S&P 500 Growth ETF (SPYG), appear to be throwing off the summer selling tendency as buyers emerge stealthily to snap up those stocks they expect will outperform.

Throughout 2019, growth stocks have mildly outpaced the S&P 500, with the exception of the summer months. As noted in the chart above, growth stocks were under pressure all summer as investors expressed concern over coming tariffs and trade-war discussions between the U.S. and China. But over the past two weeks, that trend seems to have reversed. 

A careful look at the same chart in a different, and more recent, time frame tells a new story. In just the past two weeks, the two ETFs show a flipped trend, with SPYG now outperforming SPY as it has done for most of the year previously (see chart below). This is only short-term evidence, but it supports the idea that investors are placing their bets on growth stocks going into the final quarter of the year.

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The price action for shares of Mastercard Incorporated (MA) shows a multi-month upward trend. Though that trend appears to include more noisy price action over the past three months or so, the trendline has held as support. This works to investors’ advantage as the markets prepare to potentially rebound into the fourth quarter. Stocks that have done well coming into the current moment should lead the market if investors decide to continue with their buying.

Mastercard has some unique characteristics in its battle against its longtime rival Visa Inc. (V). Visa has recently hiked its merchant fees very significantly, while Mastercard has not. Mastercard’s partnership with Apple Inc. (AAPL) has yet to bear fruit, but it is very early on, and Apple Card will likely become more and more publicly understood in the months ahead. These factors should help Mastercard maintain its trend in the wake of an investor resurgence.

U.S. stock indexes did not wipe out yesterday’s tepid rebound and showed evidence of early investor interest and stealth buying of growth stocks. Growth stocks have gone from being a laggard for the summer to leading the S&P 500. Among growth stocks, Mastercard’s upward trend and recent business news make it an interesting candidate to watch through year end.

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