Wealth Outlook 2024 - Slow then grow

Slow then grow 22 Wealth Outlook 2024 | Our outlook FIGURE 11 US large-cap, mid-cap and small-cap growth forward P/E 30 0 Forward 12m P/E Large cap growth Mid cap growth Small cap growth 20 10 2014 2016 2018 2020 2022 Source: Bloomberg as of November 3, 2023. Small cap growth proxied using the S&P 600 Growth Index, mid cap growth proxied using the S&P 400 Growth Index, large cap growth proxied using the S&P 500 Growth Index . Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. Past performance is no guarantee of future results. Real results may vary. Finding value in growth shares Tight monetary policy could hasten the failure of chronically unprofitable firms, but the market appears to be looking for trouble well beyond the marginal businesses most likely to be at risk. As FIGURE 11 shows, the valuation of currently profitable and generally growing small- and mid-cap (SMID) US firms has dropped far below the valuation of large cap growers. In the past five years, the profitable SMID firms of the S&P 400 and 600 growth indices have averaged annual EPS growth of 11%. That’s even above the 9% pace of the large cap S&P 500 growth index. Yet, the SMID growth shares trade cheaper, for an unusually deep discount of 39% on current-year estimates compared to the valuation for the large cap segment. In fact, they trade 29% below their own 25-year history based on trailing price-to-earnings (P/E) ratio.