Of these, some will renew themselves and return to the fast track, but others will continue to fade or will become average performers. On the other hand, a few companies have been remarkably successful in maintaining their earnings momentum year in and year out. Wherever they are found, the very factors that make these companies attractive also tend to make their stocks more volatile. Growth Stock Characteristics Price. Nevertheless, the size of the premium can vary a great deal depending on interest rates, inflation expectations, and investor psychology.
Psychology can also influence valuations, which at times in the past have been driven to extremes.
As inflation and interest rates climbed, these levels proved excessive, and the entire market soon collapsed. If investors turn their attention away from growth stocks, the premium can shrink drastically and even disappear. Since 1994, growth stocks have been solidly favored over value. Over time, growth stock prices have generally reflected their superior earnings increases, though they may not move in lockstep. Growth stocks have often performed best relative to the overall market when the economy is slowing or downright sluggish.