Value Stocks vs Growth Stocks — Which Holds Up Better When Rates Are High?

When rates rise, growth stocks tend to feel the pain first. Ahead of October's volatile market, JP Morgan has been recommending a tilt toward value stocks. Here's the simple reason why interest rates hit different types of stocks so differently.

What Are Value Stocks?

Value stocks are companies making solid profits right now — banks, energy companies, consumer staples. Their share prices are typically close to what the business actually earns today, which is why they're considered 'cheap' in valuation terms.

What Are Growth Stocks?

Growth stocks are priced on future potential, not current profits. Think AI megacaps and biotech — companies that may earn relatively little today but are expected to grow massively. That future expectation is already baked into the stock price.

Why Do Growth Stocks Get Hit Harder When Rates Rise?

It comes down to what a future dollar is worth today. When rates are high, money you expect to receive years from now is worth less in today's terms. At a 2% rate, $1,000 three years from now is worth about $943 today. Bump that rate to 8%, and the same $1,000 is only worth around $794 today.

Growth stocks depend heavily on earnings that are years away. Higher rates shrink the present value of those future profits, dragging the stock price down. Value stocks earn their money now, so rising rates hit them much less hard.

S&P500 ETF: Built-In Balance

An S&P500 ETF holds 500 of America's largest companies — value stocks and growth stocks together. Whichever environment favors one type, you're already holding both. No need to guess which side wins.