What's up grandmas guys here according to the caption, so as we approach the new year of 2022, we got to talk about something: that's getting brought up a lot more often lately, now that the stock market is returning back to its previous all-time highs, and that has To do with the stock market completely flipping over the next 12 months. Now, usually, when i see articles the headline talking about the great stock market, rotation, i'll usually give them a quick glance over chalk it up to a slow day in the markets without much else to talk about and then i'll get back to watching the new season Of dexter, but this time is actually different. In fact, the more i've looked into the so-called reversal, the more i tend to agree with it, not to mention. I'm also somewhat surprised that more people are not talking about this, because not only is it incredibly interesting, but it explains why some of your portfolio has stopped printing attendees.

So here's what's happening in terms of a potential stock market flip what this means for you and how you could use this information to make more money, although, as usual before, we start, i'm going to need you to rotate that, like button for the youtube algorithm by Giving it a gentle tap, of course, some people complain about breaking their phone or computer screens because they hit it too hard. Don't do that just a simple poke will do and that's it. So thank you guys so much and also big. Thank you to the motley fool for sponsoring this video, but, more on that later now to bring you guys up to speed.

Here's a quick rundown of exactly what's been happening, because in order to understand exactly why analysts and hedge funds believe the market's about to rotate. We first have to understand exactly how we got here, as i'm sure most of you know, when the economy first shut down in march of 2020, the entire market took a massive plunge and everything dropped regardless of what it was. However, just weeks later, when interest rates were lowered and stimulus packages were unleashed, companies like amazon, apple, shopify, paypal, tesla, zoom, facebook, now meta and nearly every other digitalized service saw a huge boost to their stock price. While everyone was expected to stay home, these were what's known as growth stocks and throughout the last year and a half they've, almost completely dominated the market and produced some of the highest year-over-year returns for their investors.

Now i've covered this in the past. When i mentioned that, as the s p, 500 continues to hit record highs, much of that growth is actually driven by the top few tech companies which hold the largest weight within the index, simply because they are the most valuable by market cap. Therefore, those companies increase in value, they tend to lift the entire index up, at the exact same time, making all of us a lot of money. Although, as we approach, 2022 experts are now beginning to anticipate a shift with interest rates expected to rise in a multitude of growth stocks, beginning to fall back down to their pandemic pricing, some are calling for a rotation back to value stocks which, for the last year, Have been largely overlooked and overshadowed by the largest growth stocks on the market.

They often point to the data that, over the last 40 years, growth in value stocks ebb and flow as one continually overtakes the other. But now they say that value stocks are poised to make a dramatic return, as the entire market begins to rotate. So when, and could this actually happen well to figure that out, we first have to define the terms growth, stocks and value stocks. Now a growth stock is a company that has the potential to outperform the broad market because of their rapid growth and expansion.

These can include the companies like amazon apple, facebook, google and the other large companies who have led the market already, but on the other hand, we also have what's known as value stocks. These are the companies believed to be trading below what they're actually worth, and because of that, they have the potential to give you better returns. For example, a value stock could include a company like walgreens american, express coca-cola boeing or johnson and johnson, and throughout the last year and a half a lot of them have been overlooked. An investment manager, morgan stanley recently said that when we look to 2022, there should be more of a debate about valuations and the direction of inflation, that's great for value stocks and cyclical companies, but not for tech.

Once rates start to more definitively move higher. On top of that, it was also added that big tech, like apple and netflix, are great companies, but can you think of better circumstances for their business than having a pandemic, where people are working from home and need better tech, while they're holed up in their houses With nothing to do and goldman sachs noted that, although many of these high growth companies with little to no profits could have bright futures, their current valuations are dependent on long-term future cash flows. That makes them especially vulnerable to the risks of rising rates or disappointing revenues, or basically, all you got to know is this. The consensus among analysts is that, when inflation and interest rates increase, investors are going to pay more attention to earnings and cash flows, and that could shift their focus away from big tech and into smaller value stocks that could in comparison provide a better return.

For example, every year fortune releases what they call their investors guide to the following year and their 2022 prediction was entirely focused around this very same upcoming rotation. They explained that growth stocks, trade on the expectation that strong future earnings will eventually justify their valuations, but as interest rates increase, those higher yields eat into profits and, as other investments begin offering higher returns, growth stocks look less attractive in comparison and therefore decline. They say the last time a strong economic recovery coincided with relatively high inflation, which was from 1982 to 1984. value outperformed growth by 25.

It's also worth mentioning that as inflation and supply chain bottlenecks create a search in pricing. If that persists, companies will start building large price increases into long-term contracts, including labor agreements that trend bakes in future price increases, leading to a cycle of more increases. In this case value stocks benefit because they sell the goods that a society wants during an economic recovery. Like farm equipment, plastics, natural gas and mortgages plus as inflation increases, those companies could very quickly increase their prices and that is reflected in their net profits.

As a result, value outperformed growth in five of the last six recoveries from a deep recession. Then they go on to say that ordinarily value would have already outperformed the broad market, but with new variants, travel restrictions and uncertainty in a global economy. Tech and growth stocks have continued to do well, leading value stocks to still trade at dot-com bubble lows in relation to tax. Now they do mention that they actually forecast u.s stock prices to see a decline over the next decade when you account for inflation, and they conclude that value stocks are the only asset likely to generate a five to ten percent real return over that time frame.

Of course, when it comes to this, the motley full recently ran an article, quoting charlie munger, as saying that all successful investment is value investing, even though he wishes cryptocurrency didn't exist. However, charlie munger did mention that there is a downside to value investing and that it's getting very difficult, because we have a vast increase in the intellectual horsepower. That's trying to get rich by owning securities they've bid the good businesses up and up and up and up in america at least almost every great business is selling 35 times earnings, or more so before we go into what this means for the future of the market. While we're on the topic of the motley fool, i'm excited to share a quick message from our sponsor the motley fool.

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Rotations are nothing new. The 1990s saw the tech boom before dropping 75 value. The 2000 saw the real estate boom before collapsing, and the 2010 saw the tech boom again with prices going even higher. So in the big picture, what we're experiencing now is relatively normal, as i mentioned earlier, we've seen cyclical rotations over the last 40 years throughout growth and tech, as interest rates and markets change, but the risk is that things like this are nearly impossible to time, like Even though there was a lot of talk about a great rotation happening in late 2020 and some value stocks did end up going up, it was a lot less than expected because of delta concerns and supply chain issues that led to less manufacturing.

That led to many of the growth stocks continuing to increase, even though it was predicted that they would begin to slow down. We also just don't know if tech will continue to dominate lead the way, despite the goldman sachs ceo saying, to prepare for lower returns over the next few years. As he explains, we would expect not to see the same type of returns and equities in many other assets over the next few years, as we've seen throughout the last couple of years. But in terms of what you can do about this information, i do think the great value rotation is a valid argument.

I think it's natural that over time demand will shift, and i would expect that to benefit the companies which, over the last year, have been dismissed as boring boomer stocks, although at the same time we also have to acknowledge that big tech is not going away and Our economy has become so reliant on a lot of those companies that we use day-to-day. It's not like we're gon na snap, our fingers and then never order from amazon ever again, because their stock price is high. In fact, at this point, if i had the choice, i would just stay home all day and order everything i need from amazon. In fact, that's actually what i've been doing so in terms of the overall recommendation here, i'm not going to tell you just to keep buying the s p, 500 and hodl, because that's what i say every time.

I want to make this more interesting and leave the choice to you. So here's what i have to say. First, if you want to go, buy value stocks and banking, financials, retail travel, industrials or anything else, that's underperformed this year, it's still high risk high reward. Just because something is trading below its value relative to other companies doesn't automatically mean it's going to be going up in price.

On the other hand, though, in the short term, you could do quite well if you pick the right ones as interest rates, increase and people look for new opportunities, so as a speculative investment, it could pay off the second for less risk. You could invest in the broader markets through an etf or an index fund, for example. The russell 1000 follows the top 1 000 companies in the us, and it tends to skew more towards mid cap stocks. This would weight your investments slightly differently than the s p.

500, although not enough to miss out entirely if tech continues to do well or you have berkshire hathaway, the tried and true value investor which so far year to date is beginning to catch up to the s p, 500 or third, you could just stick with what You're normally doing and stay with the s p 500, which lets the leaders continue to lead. Now there have been ongoing concerns and talks about the s p, 500 being weighted a little bit too heavily towards big tech and there's certainly a risk to that. But there's also a risk that you miss out on the growth if they continue to do well, even if interest rates increase. So, overall, my thought is that, yes, there is a logical argument to be made for value stocks, and i do think that, yes, once interest rates increase, people are going to be looking for other opportunities.

It's even said that the bullish thesis going forward into 2022 is that the economy returns to pre-covered levels, but at a much lower labor level. Therefore, the productivity gains are going to be enormous, that's going to lead to better profits. However, it just comes down to the risk you're willing to take, and if you believe that smaller companies are going to outperform, your worst case would likely be underperforming. The rest of the markets, which for the last decade is done quite well.

For me, i am still buying into the s p 500, but i am allocating a small portion of that into international markets, which is expected to go up by another five to ten percent annually over the next decade. My thought is that if tech goes down and value stocks go up, then that should balance out my overall investment, and if tech keeps going up alongside value investments, then my portfolio will do even better. Of course, the biggest risk here is that everything goes down in which case i'll just keep buying, but it's nothing to change a long-term investment strategy for, even though it is something to take into consideration, but i wouldn't go all in either way. It's just a good idea to diversify, make sure you're not entirely invested in just one sector, keep buying consistently and then no matter what always destroy the like button for the youtube algorithm and also don't forget to sign up for the motley fool down below.

In the description to see what they had to say about my investments, because so far in the challenge between myself and the rest of millennial money, my picks are up over 16 percent in the last few months. So if you want to see what those are, the link is down below in the description, so with that said, you guys thank you so much for watching also feel free to subscribe hit. The notification bell add me on instagram and on my second channel the gram. Stefan show i post there every single day - i'm not posting here.

So if you want to see a brand new video from me every single day, make sure to add yourself to that. And lastly, while we're on the topic of stocks, if you want a completely free stock, that's now worth all the way up to a thousand dollars, use the link down below in the description and sign up for public using the code. Graham, you may as well do that it's pretty much like free money enjoy, let me know which stock you get. Thank you so much for watching and until next time,.