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This stock market metric has never been further out of whack

September 20, 2020, 12:00 PM UTC

Most kids are at school—at home. Baseball games have cardboard fans. Smoke is obscuring the sky in many states. It’s 2020, and a lot of things are out of whack. Including one Wall Street indicator that could portend bad things to come for growth investors.

CFRA Research’s Sam Stovall has been watching the rolling 12-month differential between growth and value stock returns, and reports that as of August 31, the differential was at its highest month-ending level ever. Heading into September, that level was almost 60% higher than its two-standard deviation threshold, he notes, and surpasses “the highs set during the tech bubble of the late 1990s,” Stovall wrote in a recent note.

Indeed, the last time growth and value were this disconnected, the market corrected itself and investors swung back into the lower-priced value, as we saw in dramatic fashion in 2000 (see chart). Those principle sectors dominating “growth” are tech, consumer discretionary, and communication services, Stovall adds.

Currently, the S&P 500 Growth Index has risen roughly 56% from March 23 through Friday’s close, while the S&P 500 Value Index has gained about 38%. And even following the big correction we saw in growth stocks to kick off September, the divergence between value and growth is still the highest since late 1999, Stovall says.

That’s “a concern for me, but it doesn’t really seem to be a concern for the market, at least in the near term,” Stovall tells Fortune.

Looking to the big stock market bubble in 2000, “Back then, maybe we were worried about tech individually, whereas today, maybe the concern is more to do with growth versus value,” Stovall suggests. “I feel as if we’re in a bubble, at least based on the growth versus value disconnect, but instead of it being a bubble that requires the entire market to blow up, maybe it’s more like, ‘Here’s a reason why we will probably go through some sort of a rotation from growth into value,'” he argues.

Indeed, analysts led by Toni Sacconaghi at firm AllianceBernstein wrote in a note Monday that over the past few years, there has been “unprecedented migration” to growth, and the “strength and sustainability of this growth rally in tech and the broader market is probably the biggest question among investors today.”

Many on the Street, however, are undeterred: Analysts at Goldman Sachs wrote in a note Wednesday that “growth is more valuable to investors than ever in the low interest rate environment that is likely to persist for years,” noting that growth has outperformed value during the past one, three, five, and 10 years. And while there may be “short-term disruptions,” overall, “investor demand for secular growth will persist,” Goldman Sachs notes, driven largely by the Fed’s renewed commitment to keep interest rates at roughly zero likely through 2023.

Yet for investors eager to pick out the next market bubble, Stovall issues a word of caution: “Today, we’ve got to be careful. Maybe growth is the new tech.”