Growth is the largest area of the market, and betting on these stocks has become one of the primary strategies for US investors.
As such, the question of “which growth stocks” always lingers.
And these companies come in all different shapes and sizes.
For example, we all know about the mature, high-quality growth names like Nvidia, Meta, and Netflix…. Think Magnificent 7. The best stocks.
And then there are some real offensive, high-beta growth names. I’m talking about companies that are still pre-revenue, or just turning the corner in terms of profitability.
I like to boil it down to two broad baskets…
There is large-cap/quality growth.
And there is speculative growth.
So far, the current bull market has been dominated by the largest growth companies in the world. They have been the clear leaders. It hasn’t been close.
But that is finally changing.
As investors embrace increasing levels of risk, I think it’s time to shift the strategy. I want my high-flying offense on the field.
Speculative growth over quality growth is the new playbook:
Here’s the ARK Next Generation Internet Index vs Nasdaq 100 ratio completing a textbook trend reversal.
You can think of this in a number of ways…
It is start-up tech vs legacy tech.
Young growth vs old growth.
Little tech vs big tech.
At the end of the day, it means the riskiest stocks are ready to take charge while the old large-cap leaders take a breather.
It’s just more evidence that we’re going back to that place where the animal spirits thrive.
It is a hallmark characteristic of any sustained bull market.
I’m talking about relative strength from the lowest-quality, highest-risk names.
They will call it the trash trade. They’ll insist it’s just a dead-cat bounce. Don’t listen.
This is likely a valid trend reversal, and it’s not the least bit bearish.
These stocks are hated. Recency bias has investors programmed to think mega-cap growth is the only game in town. This should only add fuel to the fire.
The bottom line is that the path of least resistance has shifted in favor of the most risk-on stocks in the market. This is true on both absolute and relative terms.
Expect more leadership from speculative growth in the future.
You don’t have to own these companies forever. But you want to be in these stocks right now.
This theme dominated the bull market of 2017 and again in 2020… I don’t think 2025 will be any different.
It’s not too late to position yourself for it. This thing is just getting started.
We’ve been leaning into the speculative growth trade in our Breakout Multiplier system, and it continues to reward us.
Sign up here if you‘re trying to make the most of this bull market.
