The U.S. economy has spent almost two years shrinking, and Standard & Poor's 500 corporate earnings have dropped more than 25% in the past year. It's not an easy environment if you're an investor looking for growth.

Investors who embrace the value investing strategy have their own problems these days, especially with the stock market up 57% in the past seven months. But the challenges are no less daunting for growth investors, who favor companies that they believe have strong future growth prospects.

The biggest problem for growth is the lack thereof. "It's safe to assume companies are not going to grow as fast in the next 10 years as in the last 10 years," says Bob Millen, portfolio manager of the Jensen Fund (JENSX).

High on Tech Stocks Not that growth managers aren't finding stocks to buy. "Yes, it is not as easy to find growth these days, but there is still ample opportunity," says J. Stephen Lauck, chief executive of Ashfield Capital Partners. Lauck, for example, likes technology and semiconductor stocks.

Tech has been a popular and, recently, lucrative investment for growth managers. Asked about the current environment, many growth managers insist that growth stocks will outperform other parts of the market going forward. For one thing, Lauck says, "in a slow-growth environment, growth companies will shine." Growing companies also tend to generate consistent cash flow, have stronger balance sheets, and often have a presence overseas, where economic growth seems to be stronger than in the U.S.

The explosive stock market rally of the last seven months has had a wide range of effects on growth managers' performance. Those who did the best were very aggressive managers, who favor riskier growth stocks, says Morningstar (MORN) fund analyst David Kathman. But many of those managers had a terrible 2008.

Millen's Jensen growth fund favors safer growth names, and so it has lagged during the recent rally. Jensen has "a really good long-term record, but they tend to do poorly in these speculative growth markets," Kathman says.

Millen says the rally in low-quality stocks could continue for a while, but eventually the market will reward higher-quality names. His fund has purchased stocks like medical device firm C.R. Bard (BCR), which he praises as a steady, consistent grower.

Hard to Forecast Markets Other managers may be adopting his approach. "If the economy [grows] slowly, the aggressive stuff won't do as well," Kathman warns. Thus, "there is a tendency for a lot of managers to be more cautious going forward."

Keith Goddard, president of Capital Advisors and manager of the Capital Advisor Growth Fund (CIAOX), also is steering his investments toward more conservative growth stocks. He owns Wal-Mart (WMT) and Procter & Gamble (PG), two well-known companies that are likely to grow but unlikely to give investors any nasty surprises. Stocks like these, which Goddard calls "big, blue chip growth stocks," have sat out much of the market's recent rally. To Goddard, that's a sign they still have room to move higher. "For everyone who is frustrated that they've missed this move in the market, there is some solace," Goddard says. By some measures, the cheapest stocks in the market are also the safest, he says.

No one can be sure the economy will grow slowly in coming years. It could fall back in recession, or the recovery could be much faster than anticipated.

That makes it difficult to forecast market conditions, and it makes predicting profits very difficult. "That's one of the common themes we [hear] from growth managers, a lack of visibility of earnings," says William DiSisto, who monitors growth-focused mutual funds for Morgan Stanley Smith Barney (MS). Growth investors are, by nature, focused on the future at a time when the future is especially cloudy.

Flummoxed by Wild Swings Health-care stocks have traditionally been a key feature of growth portfolios, DiSisto notes. But many managers are wary because of uncertainty surrounding health-care reform proposals being discussed in Washington. "Until you get some clarity out of Washington what health-care reform is going to look like, managers are taking a cautious approach to that sector," he says.

Growth and value managers alike have been flummoxed by the stock market's wild mood swings over the past few years. An individual company's true value or its growth prospects have been almost ignored in favor of broad economic and financial forces.

Many growth managers are hoping that, eventually, companies with solid, consistent growth will be rewarded. But, in these shaky times, there are no guarantees that will happen.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE