Value literally thrusts itself back into the spotlight

Key Points:

• For the bulk of the last 20 years, the Value factor has underperformed the Growth factor
• Historically, however, there has been an alternating ebb and flow between the performance of the Value factor and the Growth factor
• Recent strong action within the Value factor suggests that now may finally be a time for traders and investors to allocate more capital to Value stocks

The relationship between Value and Growth

For testing purposes, we will examine the historical performance of the S&P 500 Value Index and the S&P 500 Growth Index, using weekly data starting in 1953. The chart below shows the relationship between the performance of the Value and Growth indices.

In the chart above, we see the clear long-term ebb and flow between the two indexes' performance. We can also see that the ratio has mostly trended lower (i.e., Value underperforming Growth) over the last 20 years.  Still, the ratio recently bottomed out in an area that has served as a bottoming-out level two times prior.

Will this recent area of support hold? And can value stocks finally start to once again gain ground on growth stocks? There is reason to believe that they will.