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Market Update: 06-11-18

TIME FOR VALUE TO SHINE?

John Lynch Chief Investment Strategist, LPL Financial | Jeffrey Buchbinder, CFA Equity Strategist, LPL Financial

When will value have its day in the sun? The growth style’s historic run of outperformance has continued this year, despite the emergence of several drivers that have traditionally served as catalysts for value stock outperformance. Generally, value stocks benefit from an economic growth tailwind, whereas growth stocks tend to be more in favor when the growth potential they offer is scarce. Year to date, the Russell 1000 Growth Index has returned 9.5%, compared with just 0.5% for the Russell 1000 Value Index. Over the past 10 years, including the 2008–09 financial crisis, large cap growth stocks have outperformed value stocks by about 80 percentage points [Figure 1]. Based on the longest available data series*, the current growth stock rally is actually the longest ever. So as summer approaches, we ask: When will value finally have its day in the sun and start to shine?

WHAT’S WRONG WITH VALUE?

Accelerating economic growth has historically helped the value style, a condition that is in place today. Consensus forecasts for U.S. gross domestic product (GDP) reflect a solid rebound from 2.2% growth in the first quarter to over 3% in the second and third quarters. We forecast GDP growth for this year at near 3%, above last year’s 2.2% and consistent with consensus. Yet, the growth style of investing has continued to lead the equity market higher...

Download the complete PDF with graphs here.

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