Growth Stocks Back in the Spotlight as Bond Yields Ease
Strategies that favor fast-growing companies over those with cheaper valuations made a strong comeback in October. As government bond yields declined across the U.S., U.K., and Europe, investors clearly shifted their preference toward growth stocks — a trend that could persist well into 2026.
According to Panmure Liberum strategist Joachim Klement, bond yields — not earnings growth — remain the key driver of performance across markets. He believes growth stocks are best positioned for the next cycle, especially as yields drift lower.
Klement points out that U.S. value stocks endured a “lost decade” from 2012 amid ultra-low interest rates designed to stimulate the post-crisis economy. That dynamic changed after the 2022 inflation shock, when higher rates gave value stocks an edge.
But in October, as the U.S. 10-year Treasury yield slipped below 4%, value stocks fell behind once again — underperforming by 1.9%, regardless of valuation metrics. Income stocks lagged by 1.5%, while companies with strong earnings-per-share momentum gained 1.4%.
Despite repeated all-time highs for the S&P 500, Klement sees no signs of market euphoria. The firm’s proprietary sentiment indicator has returned to neutral, suggesting U.S. equities may actually be slightly undervalued relative to fundamentals.
Looking across the Atlantic, Klement sees similar opportunities for growth stocks in both the U.K. and Europe. The sectors with the most upward revisions to earnings forecasts in October were resources, banks, and financial services.
From a long-term view, Klement notes that in the U.K., strategies focused on cheap, high-dividend stocks have historically delivered better returns — but that pattern reversed last month as bond yields dipped.
There are also early signs of recovery in the U.K. IPO market, which saw three new listings in 2025 raising £850 million, already outpacing last year’s weak total of £600 million. This renewed activity, coupled with momentum stocks outperforming by 1.2%, bodes well for the broader growth trend.
In Europe, the easing of rates — particularly following France’s summer volatility — led value stocks to underperform growth by 80 basis points in October, reversing a trend that had been in place since late 2021.
In short, as yields decline and risk appetite revives, growth is once again the market’s favorite story — and 2026 could mark a full return to the high-growth playbook.
