There's still bad news ahead for growth stocks, according to a Citigroup strategist. "Now that central banks are unwinding monetary support, growth stock valuations have further to fall," analyst Robert Buckland wrote in a Thursday note. Growth stocks will continue to suffer as real yields continue to rise, the note said. Citigroup analysts as a group believe it is "more likely" that real yields eventually turn more hawkish than dovish, and one analyst in the note believed equities will "remain vulnerable" even if real yields stop rising. Changes to monetary policy have an outsized impact on global equities. In 2019 and 2020, equities rallied as monetary policy eased and real yields dropped. Conversely, equities have slumped in 2022 as monetary policy tightened around the world. A review of a growth index and a value index split in the MSCI AC World benchmark showed that the growth index tracked real yields "especially closely." A majority, or 90%, of the price/earnings multiple in the growth index can be explained by changes in the U.S. 10 year TIPS yields, the investment bank found. Meanwhile, global equities as a whole still have more room to fall as they do not look "especially cheap" against history, the note said. Analysts pointed to a drop to the 10x multiple during the Eurozone crisis in 2011 and 2012 that suggests that global equities could see another 33% derating. A portfolio that would protect against a steeper fall would favor value over growth, and emerging markets and the United Kingdom over the U.S. and the European Union, according to Citigroup. It also preferred financial and commodity stocks over technology companies. Growth stocks have already taken a giant hit this year compared to other sectors. The tech-heavy Nasdaq Composite is down nearly 30% year to date, while the S & P 500 is lower by 18% while the Dowe Jones Industrials are off by 13%. Meanwhile, FAANG stocks are in a bear market, with Apple recently losing its title as the world's most valuable public company.
Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., May 10, 2022.
Brendan Mcdermid | Reuters
There's still bad news ahead for growth stocks, according to a Citigroup strategist.