Since at least 1934, Ben Graham published his seminal book Security Analysis, value investing has been arguably the single most successful strategy. After all, who could argue with buying companies that are cheap relative to underlying fundamentals like earnings, sales, and dividends?

Well, after a decade’s worth of underperformance, even the most diehard value investor is asking whether the strategy is obsolete in an era of relentlessly growing technology platform companies like Facebook, Apple, Amazon, Netflix, and Google.

While it’s a bit beyond our typical traders’ timeframe, we would note that similar periods of extended value underperformance have eventually led to dramatic reversals back in favor of cheap stocks. After trailing the S&P 500 in the peak of the tech boom from 1996 to 1999 (to say nothing about the more dramatic moves in the high-flying Nasdaq), Warren Buffett’s value-focused Berkshire Hathaway went on to outperform the index by nearly 25% per year from 2000-2002!

This week’s price action suggests that we may be nearing a similar “changing of the guard” back toward value stocks. With more than $85B in combined assets, the Russell 1000 Growth and Value ETFs (IWF and IWD, respectively) represent a massive allocation to the opposing investment strategies. As the IWF/IWD ratio chart below shows, growth has been dramatically outperforming value over the last three years:

While the trend in this chart is clearly higher, we wanted to highlight this week’s big drop in the ratio. As of writing, growth stocks (IWF) have underperformed value stocks (IWD) by 2.8% this week alone. If it holds through the rest of the trading day, this would mark the biggest shift in favor of value stocks since the Great Financial Crisis in 2009!

Of course, we’ve similar one-week “growth panics” do little to deter the long-term trend in favor of growth, but at a minimum, this week’s drop should serve as a reminder that growth doesn’t always outperform value, and could lead to more two-way trade moving forward.

For an alternative (or at least more balanced) view, see my colleague Ken Odeluga’s article “Nasdaq bounce shoves aside value ‘comeback’” from earlier this week!

This research is for informational purposes and should not be construed as personal advice. Trading any financial market involves risk. Trading on leverage involves risk of losses greater than deposits.

Analysis feed

Latest Forex Analysis

Editors’ Picks

EUR/USD struggling to hold onto 1.10 as USD gains ground

EUR/USD is trading close to 1.10, as the US dollar gradually advances. Two White House advisers expressed contradicting accounts of US-Sino trade talks, causing confusion. Germany refrained from adding fiscal stimulus.

EUR/USD News

GBP/USD trades around 1.25 as EU pours cold water on Brexit hopes

GBP/USD is trading around 1.25, off the two-month highs of 1.2582 as EU officials cast doubts about the seriousness of the new UK proposals on Brexit. 

GBP/USD News

USD/JPY drops to one-week lows on trade war headlines

The USD/JPY fell during the American session following reports that the Montana Farm Bureau said China's delegation has canceled a planned trip to view US agriculture.

USD/JPY News

Top 3 price prediction Bitcoin, Ripple, Ethereum: Ethereum points to the Moon as Bitcoin takes a break

ETH/USD exceeds $220 and is bidding to lead the market. Bitcoin sets a bear trap and recaptures $10,000. XRP stalls between technical levels and fails to consolidate $0.30.

Read more

Gold climbs further beyond $1500 mark, lacks follow-through

Gold edged higher for the second consecutive session on Friday, albeit remained well within a familiar trading range held over the past two weeks or so.

Gold News

Forex Majors

Cryptocurrencies

Signatures