Value Stocks Hit 15-Month Low Against Growth As AI Fuels Tech's Vengeance Over 2022's Rate-Hike-Induced Market Fall
On Thursday, the ratio between the $Ishares Russell 1000 Value Etf (IWD.US)$ and the $Ishares Russell 1000 Growth ETF (IWF.US)$ fell to levels not seen since end-January 2022, thus illustrating a widening underperformance of value-oriented companies relative to growth ones.
The gauge that measures the relative strength of value against growth stocks climbed as high as 33% in 2022, as the Fed's aggressive rate hikes triggered massive selloffs in growth-tech shares, while the value segment of the market was bolstered by the stellar performance of energy stocks.
Although value stocks have lost virtually all of their relative gains compared to growth since 2022, they remain substantially cheap in the long term, with the IWD/IWF ratio still trading more than 60% lower than its September 2008 highs, when Lehman Brothers failed.
What Explains the Performance This Year? Losses in the $Energy Select Sector SPDR Fund (XLE.US)$ , $Utilities Select Sector SPDR Fund (XLU.US)$ , $Financial Select Sector SPDR Fund (XLF.US)$ and $Real Estate Select Sector Spdr Fund (The) (XLRE.US)$ have weighed down the value-invested ETF.
- The value is also sharply underweighted in technology, consumer discretionary and communication services. The $The Technology Select Sector SPDR® Fund (XLK.US)$ , $Consumer Discretionary Select Sector SPDR Fund (XLY.US)$ and $The Communication Services Select Sector SPDR® Fund (XLC.US)$ have contributed the majority of the success in the growth-related ETF.
- Stock-wise, growth was pushed up by $Apple (AAPL.US)$ , which added alone 3.9 percentage points to the ETF's performance year to date; $Microsoft (MSFT.US)$ added 3.8ppt; $NVIDIA (NVDA.US)$ added 2.7ppt; and $Alphabet-C (GOOG.US)$ $Alphabet-A (GOOGL.US)$ added 2ppt. Therefore, the strong rally in AI-related stocks sharply favored the growth universe of the market.
- $Meta Platforms (META.US)$ was the main stock contributor for the value ETF in 2023, but despite an impressive 110% return this year, it only provided 1.3ppt to the IWD's performance due to its modest 2.5% weight in the portfolio.
- $Pfizer (PFE.US)$ , $Johnson & Johnson (JNJ.US)$ , $Chevron (CVX.US)$ and $Bank of America (BAC.US)$ have been the main negative contributors to the performance of value in 2023.
- The value is also sharply underweighted in technology, consumer discretionary and communication services. The $The Technology Select Sector SPDR® Fund (XLK.US)$ , $Consumer Discretionary Select Sector SPDR Fund (XLY.US)$ and $The Communication Services Select Sector SPDR® Fund (XLC.US)$ have contributed the majority of the success in the growth-related ETF.
- Stock-wise, growth was pushed up by $Apple (AAPL.US)$ , which added alone 3.9 percentage points to the ETF's performance year to date; $Microsoft (MSFT.US)$ added 3.8ppt; $NVIDIA (NVDA.US)$ added 2.7ppt; and $Alphabet-C (GOOG.US)$ $Alphabet-A (GOOGL.US)$ added 2ppt. Therefore, the strong rally in AI-related stocks sharply favored the growth universe of the market.
- $Meta Platforms (META.US)$ was the main stock contributor for the value ETF in 2023, but despite an impressive 110% return this year, it only provided 1.3ppt to the IWD's performance due to its modest 2.5% weight in the portfolio.
- $Pfizer (PFE.US)$ , $Johnson & Johnson (JNJ.US)$ , $Chevron (CVX.US)$ and $Bank of America (BAC.US)$ have been the main negative contributors to the performance of value in 2023.
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