Stock market sentiment has shifted towards value shares in 2026. But the big question is whether this rotation is a short-term issue or something investors should pay attention to?
The short answer is that it depends: the smart money (that is, institutional investors who are controlling huge amounts of money) says value stocks are going to outperform over the next 12 months, but the long-term picture looks quite different.
According to the latest data from Bank of America, 43% of fund managers expect value to be the winning theme for the next 12 months. That might not sound like a lot, but it is.
Source: Hedgefund Tips
It’s been unusual in recent years to find the smart money expressing that kind of bullish sentiment on value shares relative to growth stocks. But it’s where we are right now.
Investors might take this as their cue to start looking for value opportunities. And while I don’t think this is a bad idea at all, there are some things to be wary of.
One is that sentiment can change in an instant – the next survey might show a very different view. The other is that, historically, value outperformance tends to be relatively short-lived.
Since the start of the year, value shares have beaten their growth counterparts. But from a 30-year perspective, this barely registers on what has been a durable trend the other way.
Source: Longterm Trends
The general shape of things is that the stock market goes in cycles. Growth stocks do well until their future profits come into question, at which point value shares come to the fore.
This happened during the dotcom crash and at the end of the Covid-19 pandemic. And it looks like it’s happening again as investors try to figure out artificial intelligence (AI).
In each case, growth stocks went on to outperform. So while the market might justifiably be worried about datacentre spending, focusing exclusively on value shares is risky.
Amazon‘s (NASDAQ:AMZN) the king of the big spenders right now. In fairness though, the $200bn it plans to spend is similar to Microsoft as a multiple of Cloud revenues.
The stakes are high, but the potential rewards are huge. Amazon’s making good progress in developing its own Trainium chips that compete favourably with Nvidia’s latest GPUs.
That could be hugely valuable in the future when AI shifts from training to inferencing. But to really fly, Amazon needs users to join AWS over the likes of Azure or Google Cloud.
Investors though, are focusing on risks, which is why the stock’s unusually cheap right now. And I’m looking to use this as a chance to add to my existing investment.