“Our work suggests the most important determinant between growth and value performance is the scarcity or abundance of growth,” says Bank of America Merrill Lynch analyst Savita Subramanian. Since 1982, growth has outperformed during periods of earnings deceleration, and value has won when earnings were picking up.
Witness 2015, when S&P 500 earnings declined and investors went gaga for anything still growing. The FANGs, Facebook, Amazon, Netflix, and Google (now Alphabet), returned an average of 83% that year while the S&P 500 was -0.73% and the Morningstar Value Index was -5.03%.
For value stocks, according to Subramanian, “the run may have just begun.”
Any earnings acceleration due to Trump’s policies; tax, growth or otherwise, could have a big impact on our portfolio.
Source: Barron’s, January 2, 2017
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