After a rally led by growth companies that has left the S&P 500 index roughly 4per cent from setting a new record high, the window of opportunity for value stocks to take leadership on Wall Street, as has often happened in the past, may be closing.
Graphic: 10-year spread between Russell 1000 Growth and Value - https://fingfx.thomsonreuters.com/gfx/mkt/dgkpldbokpb/Pastedper cent20imageper cent201596122422466.png "So you are never going to see a value sector, value company, value investor shine unless the projection for economic growth significantly improves and we don’t really have that necessarily this year."
But in a note to clients on Wednesday, Savita Subramanian, Bank of America Merrill Lynch's head of U.S. equity and quantitative strategy, pointed out that the relative valuation between growth and value has become increasingly stretched, and the firm prefers value stocks for at least the next few months.
Some cyclical stocks, many of which fall into the value bucket, have already outperformed since the March low. The S&P materials sector is up 57per cent, energy is up 52per cent and industrials are up nearly 48per cent to outpace the broad S&P 500's 45per cent run off the low.