Riding the Value Wave

U.S. equity markets seemed to undergo a fundamental change of direction in September of last year. Exhibit 1 illustrates the shift; our growth indices, which had outperformed value handily through the end of August, have lagged ever since. The spreads between growth and value are even greater when we compute them using our Pure Growth and Pure Value indices.

Do the strength and longevity of the value rally suggest that it must be near its peak?

To answer directly—we don’t know. Whether value continues to outperform growth or suffers a reversal is a function of numerous exogenous variables, prominently including the course of inflation, the level of interest rates, and the prospects for growth as the economy recovers from last year’s shutdowns. History does, however, let us make two observations about the nature of past value rallies.

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