Vanguard: Value stocks haven't been this cheap to growth since the COVID outbreak

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Comparing other periods when value stocks were deemed so relatively unattractive versus growth shows it ultimately pays to be contrarian.

That’s not surprising. At Jackson Hole 12 months ago Federal Reserve Chair Jerome Powell gave a speech of just 8 minutes in length that many reckon was the trigger for the stock market’s slump to October lows.

Crucially, Vanguard says that the relationship between value and growth is currently at an extreme level very similar to that seen in 2020. This is shown in the three instances of extreme valuations pictured. After an overvaluation in 1993, value shares underperformed growth by a cumulative 8 percentage points on their three-year trundle back to the median of Vanguard’s estimated fair value range, shown as the dark yellow prediction ratio line.

Furthermore, market performance across the dozen U.S. business cycles since 1980 suggests another potential reason for optimism on value, says DiCiurcio. Try your hand at the Barron’s crossword puzzle and sudoku games, now running daily along with a weekly digital jigsaw based on the week’s cover story. To see all puzzles, click here.

 

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