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Value Turn Coming?

Year-to-date through May 31st, the S&P 500 Growth Index is up 13.0%, while the S&P 500 Value Index is up just 1.8%.  This eye-popping 11.2% ytd spread might normally draw more attention, but the market seems to be saying ‘same ol, same ol’ – as it simply extends a trend dating back to 2007. We should pay attention though.  Years and years of Federal Reserve ‘ZIRP’ policy and rounds of Quantitative Easing helped goose the ‘growthier’ side of the market over value consistently and emphatically.  This trend is long in the tooth by historical standards, and with the Fed now beginning a path to higher rates and a contraction of its balance sheet, the tipping point may soon be at hand. Below, a chart representing the last two decades of value vs. growth, showing the value component nearing its turn-of-the-century (tech bubble), out of favor extreme.

In addition the market is becoming narrow in its view of what’s ‘working’ – as the chart below via Bespoke Investment Group illustrates.   Year-to-date returns for the S&P 500 through middle of last week show that just 5 stocks – or 1% of the index listings – have accounted for a remarkable 42% of 2017 returns.  Several of those stocks are big weightings in the growth indices highlighted above…

dataSource:  FactSet


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