Economy

Growth Stocks. Value Stocks. What Do Those Labels Mean?

Growth and value are basic categories in stock investing. They are so widely used that you might assume that they mean something specific.

To an extent, they do. Growth stocks promise to deliver a lot of earnings in the future but often deliver less than other stocks right now. Value stocks are priced well below what their advocates consider to be their real worth. They aren’t usually trendy.

But beyond those broad concepts, watch out. If you look under the hood, you will find that what’s called growth or value in leading stock indexes can be wildly different, and can change year by year.

The markets have undergone major shifts since the start of the pandemic, with stocks falling in and out of favor as inflation, rising interest rates, and wars in the Middle East and Eastern Europe jolted asset prices with remarkable rapidity.

Making bets on a particular style or sector is a risky undertaking in a time like this, especially if you don’t know what stocks are in your fund. At the very least, it’s critical that you understand what you’re buying.

Shifting Definitions

As I reported last year, S&P Dow Jones Indices, an influential market analysis firm, made some startling moves in its growth and value indexes. Basing its decision entirely on the hard judgments of its mathematical model, S&P included fossil-fuel energy companies like Exxon Mobil and Chevron — more frequently thought of as value stocks — in its growth indexes for 2023.

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