The Revival of Value Stocks Could Be the ‘Real Deal’

Some signs are pointing to a value-stock rotation, according to a recent article in Barron’s that says, “value stocks are acting like a tightly wound spring that has started to uncoil.”

The article reports that value has outperformed momentum by 9 percentage points in September, the “widest divergence in performance between the two factors (for stock attributes) since 2010, wrote Bank of America Merrill Lynch head of U.S. equity and quantitative strategy Savita Subramanian in a recent report. This change, she added, could represent a significant shift in sentiment and positioning away from higher growth names.

Subramanian highlighted several contributing factors:

  • The negative correlation between value and momentum: when one does well, the other doesn’t.
  • Value tends to outperform when macroeconomic data start to recover from depressed levels. She argues that economic slowdowns during a recovery typically lasts eight months (and we’re now in the sixth month).
  • Investors become “more price sensitive amidst an abundance of growth.”
  • Currently, value stocks are cheaper than usual.

The article cites similar sentiments expressed by Morgan Stanley Wealth Management chief investment officer Lisa Shalett, who recently wrote that we are seeing “a massive rotation away from growth-style factors toward value-style” stocks.