Smart Charts in Focus

Charting the Shift in Equity Market Leadership: From Growth to Value

After a decade of outperformance, growth stocks were outpaced by value stocks last year. Andrew Pyne explains why we expect value will continue to lead equity markets for some time to come.

A U.S. economy poised for growth coupled with a 10-year period of significant outperformance by growth stocks creates an environment where value stocks, in our opinion, are likely to thrive in the coming years as they did in 2016.

PIMCO has believed for some time that we are seeing a rotation from growth to value stocks. Results in 2016 bear this out: Value broadly outperformed growth, as shown in the chart, and we believe the value cycle is likely still in its early stages.

Click to share or download this chart

Many value stocks are cyclicals – meaning they tend to perform well when the economy heats up (think of financials, manufacturing and energy, for example) – and plenty of investors expect higher growth, inflation and interest rates under the Trump administration. At PIMCO, we acknowledge there are uncertainties that could affect the macro outlook, but our baseline view for continued above-trend U.S. growth is positive for these cyclical stocks that tend to rise and fall with the U.S. economy.

It’s also important to remember that the stock market tends to go through cycles where either growth or value outperforms – and generally speaking, the higher the pendulum swings one way, the higher it subsequently tends to swing the other way. The reversal that began last year followed ten years of growth outperformance, suggesting we could still be in the early stages of a prolonged upswing for value stocks.

This chart originally appeared in Putting Markets in Perspective – a concise look at PIMCO’s latest thinking on global economic drivers and financial markets.

The Author

Andrew F. Pyne

Equity Strategist

View Profile

For more charts critical to understanding markets, economics and policy, visit our Smart Charts digital library.

Related Content

Hear from Our Experts

Section:
Tag:
Date:
Expert:
Ticker:
Reset All

Video Library

Watch timely discussions about our market views and investment ideas.

Smart Charts

Access our library of economic and market charts that you can download, save and share.

Disclosures

All investments contain risk and may lose value. Equities may decline in value due to both real and perceived general market, economic and industry conditions. Investments in value securities involve the risk the market’s value assessment may differ from the manager and the performance of the securities may decline. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision.

The Russell 1000 Index consists of the 1,000 largest securities in the Russell 3000 Index, which represents approximately 90% of the total market capitalization of the Russell 3000 Index. It is a large-cap, market-oriented index and is highly correlated with the S&P 500 Index. The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index. The Russell 3000 Index is an unmanaged index generally representative of the U.S. market for large domestic stocks as determined by total market capitalization, which represents approximately 98% of the investable U.S. equity market. It is not possible to invest directly in an unmanaged index.

This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. It is not possible to invest directly in an unmanaged index. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. ©2017, PIMCO.