NEW YORK, July 16 — Fears of a potential economic slowdown are clouding the outlook for value stocks, which have outperformed broader indexes this year in the face of surging inflation and rising interest rates.
This month, however, fears that the Fed’s monetary policy tightening could bring on a US recession have shifted the momentum away from value stocks, which tend to be more sensitive to the economy. The Russell value index is up 0.7 per cent in July, compared with a 3.4 per cent gain for its growth-stock counterpart.
For much of the year, value stocks benefited from broader market trends. Energy shares, which comprise around 7 per cent of the Russell 1000 value index, soared over the first half of 2022, jumping along with oil prices as supply constraints for crude were exacerbated by Russia’s invasion of Ukraine.
An earnings beat from Citigroup, however, buoyed bank shares yesterday, with the S&P 500 banks index gaining 5.76 per cent. JPMorgan analysts earlier this week wrote they believe growth stocks have a “tactical opportunity” to make up lost ground, citing cheaper valuations after this year’s sharp sell-off as one of the reasons.Growth stocks are still more expensive than value shares on a historical basis, with the Russell 1000 growth index trading at a 65 per cent premium to its value counterpart, compared to a 35 per cent premium over the past 20 years, according to Refinitiv Datastream.