Charting the outlook for value vs growth stocks + wider stock market implications.
Value vs Growth Stocks: new lows, further extremes.
(p.s. skip to the end if you just want the bullet point summary + conclusion)
Checking in on US value vs growth, the relative price lines have drifted lower toward new all-time lows. We see this on both a price-only and total return basis; with price-only straying further and further from trend, and the relative total return line well below long-term average.
These extremes are echoed in the valuation trends picture, with the discount between the cheapest vs the most expensive parts of the market still much steeper than usual – which is quite interesting to reflect on, as for much of history this indicator has ranged around -40-45% …so this is unusual.
In passing, it’s also interesting to see the different echelons of price-to-book ratio, with the most expensive parts of the market both more expensive than usual vs the cheap parts and more expensive than usual vs their own history.
Looking at US value vs growth, the big sector weight skews are basically tech on the growth side, and cyclical ( and energy) + defensive (, , ) on the value side. We can see that the recent push lower in the value vs growth relative price lines has been driven by both cyclical and defensive value losing ground against the ever hotter tech sectors.
And as such, the relative value discounts have been driven deeper still for both groups.
Lastly, on the global front, it’s a mixed picture. The MSCI ACWI value vs growth line has broken down to new relative lows, and the breadth of value vs growth across countries is clearly weakening.
Initially, EM value vs growth had been trending higher, but has also peaked and rolled over. But developed markets have seen better performance (albeit partly due to better performance from financials and less exposure to growth-tech). And on that last point, it goes to show that value vs growth relative performance (and relative value) is highly sector-driven, and that we will thus either need to see tech top or value sectors gain to turn things around here.
In Summary…
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US value vs growth relative performance lines have broken down to new all-time lows, with the price-only line stretched well below trend, and total return well below long-term average.
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These extremes are echoed in the valuation trends picture, with the discount between the cheapest vs the most expensive parts of the market still much steeper than usual (and the most expensive parts much more expensive than usual vs their own history). This is an unusual phenomenon and tells us as much about the state of value vs growth as the stock market cycle as a whole.
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The biggest sector skews in US value vs growth are defensives (healthcare, staples, utilities) + cyclicals (energy, financials) on the value side, and tech on the growth side. Both groups have seen very weak relative performance, and hence, widening relative value discounts are opening up.
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Overall, these observations point to both opportunities for value to potentially rebound vs growth, but also pressure points and distortions opening up in the market. Ultimately, if value is to rebound vs growth, it’s going to be sector driven.
Bottom line: US value vs growth has reached new all-time lows as further extremes in valuation drive large relative value gaps; the global picture is not much better (but reiterates the sector factor).