Value stocks just had their worst month relative to growth in about twenty years, according to a recent Bloomberg article that highlights vastly different opinions as to whether a comeback is expected and how market maturity factors into the equation.

The article notes that the views of market strategists Ed Clissold (of Ned Davis Research) and Marko Kolanovic (of JPMorgan Chase) “couldn’t be further apart” on a return to value, but adds that “there’s one area where they see eye to eye: Bargain hunting success is tied to the market cycle.”

According to Kolanovic, value’s recent dip is merely “a pause in a rally that’s set to resume amid a continuing recovery.” Clissold, on the other hand, advises investors to “cut holdings in value stocks, saying the bull market is maturing and it’s time to play safe by moving toward stable growers.”

The difference in opinion, the article notes, underscores “a bigger question behind the debate about the growth versus value trade: where the bull market is in the cycle,” noting the following factors at play:

• Corporate earnings expectations point to a more than 60% rise for S&P 500 companies, with the second quarter likely to mark a “peak of the expansion cycle. Meanwhile,” the article reports, “upward revisions for growth stocks outpaced value for the first time since January.”
• “Value is losing some luster” due to the drop in Treasury yields, combined with the fast spread of a coronavirus variant, and the Russell 1000 value index is “poised to trail the growth gauge for a second month after posting its worst relative performance since 2001 in June.”
• Kolanovic says the growth scare is “misplaced” and predicts the global economy will surge in the second half as countries join the U.S. in “a more synchronized growth boom.” In a recent note to clients, he wrote, “We are in the early stages of the post-pandemic recovery (the world hasn’t reopened yet) not late-cycle.”
• But Clissold points to his firm’s market cycle model, which suggests a weak second half and increasing signs of a maturing bull. In a note to clients he wrote, “Recent transports weakness could be reflecting the inevitable slowdown in economic growth in the second half,” adding that “it reflects the likelihood that the macroeconomic backdrop, while still broadly positive for stocks, is not as one-sided as it has been.”