How many times over the last few years have you heard something to the tune of “The time for value stocks to outperform is now.”  Well, we’re still waiting.  The chart below shows the relative strength of the S&P 500 Value Index versus the S&P 500 Growth Index going back to 1995.  A quick warning: if you have a sensitive stomach you may want to skip the chart altogether.

From 1995 right up to the bull market peak in 2000, value stocks couldn’t catch a break as they steadily underperformed growth stocks.  Those were the days when Energy as a sector was ‘dead’ and investors couldn’t get enough of tech IPOs with trendy sounding names.  The low for value stocks on a relative basis came on 3/27/00, and from there the reversal was swift.  By April of 2001, value stocks had regained nearly all of the ground they lost relative to growth during the late 1990s.  Unfortunately for investors in both types of strategies, the outperformance in value wasn’t the result of a monster rally, but instead a massive decline in growth stocks.

From April 2001 through late 2002, value stocks underperformed again as the Worldcom and Enron accounting scandals cast a pall over sectors like Telecom Services and Utilities – two sectors traditionally comprised predominantly by value stocks. As the dust settled on those two scandals, though, and the economy stabilized, value stocks rallied again as Energy, Financials, and Materials stocks boomed.

As the Financial sector began to unravel in 2007 and oil prices peaked in 2008, value stocks once again cratered relative to growth.  Growth has maintained its lead over value ever since.  Outside of some periods where value stocks briefly popped and strategist after strategist came out and said this time the rally is for real, growth stocks have left value stocks in the dust.  Just last year, the underperformance of value stocks marked a major milestone as they took out their lows in relative strength versus growth stocks.  While the S&P 500 Value Index saw a modest bounce towards the end of last year, any momentum it had has quickly been erased in 2020 as the ratio between it and the S&P 500 Growth index is now at fresh lows.  Start a two-week free trial to Bespoke Institutional to access our full range of research reports and interactive tools.

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