2021 has revealed the resilience and malleability of the indexes despite some significant economic challenges. The latest confirmation was the S&P 500 (SPY  ) quickly moving back to new highs despite many parts of the market suffering a vicious correction in growth stocks in November and December.

Few parts of the growth universe remained safe as all of the sub-sectors like cryptocurrencies, social media stocks, AI, gaming, and EV stocks saw significant selling. Even areas that had seemed like they had evaded the worst of the damage eventually found themselves selling off like cloud stocks earlier this week following a wave of downgrades from JPMorgan (JPM  ) and some bearish commentary in its 2022 outlook for the sector. Overall, the bank downgraded 13 stocks and upgraded 5.

It sees rising rates as being a bearish headwind especially for higher multiple stocks that are trading at levels over 20 times revenue. Some of the most prominent names that were affected were Adobe (ADBE  ), Cloudflare (NET  ), and Zscaler (ZS  ). These have been among the strongest growth stocks in the market this year and had performed relatively well during the latest rough patch in markets.

The analysts also see the combination of high inflation and rising rates as both being factors that could cause multiples to deflate especially as these make future cash flows less predictable and desirable.

JPMorgan's note added to the bearish momentum for these stocks which were weak heading into the December FOMC meeting. Despite the FOMC deciding to taper asset purchases and issuing a more aggressive timetable for hiking, the meeting was interpreted as being dovish due to the tone of Federal Reserve Chair Jerome Powell's press conference and him continuing to attribute some increase in inflation due to the pandemic which should continue healing in 2022.

Thus, there was actually a bounce and relief rally in growth stocks. While the bearish side has gained prominence due to recent price action, it's also a good exercise to consider the bullish side.

These stocks have been fantastic investments for the bulk of their existence because overall tech and cloud spending continues to grow at a double-digit rate that shows no signs of slowing, while these companies have popular products with impressive growth and high levels of recurring revenue. Further, these businesses have high margins as most costs are variable costs are quite low compared to other businesses.

The recent market drop has led to improving valuations. Historically, buying these stocks on dips of more than 20% has paid off. It's also possible that the move in short-term rates may be peaking especially if inflation can cool off which seems likely based on forward-looking indicators.