Will value stocks outperform growth in 2024? No one can know. Paraphrasing Galbraith, the only function of market forecasts is to make astrology look respectable.
Stock prices are the result of the aggregated activity or decisions of billions of producers, consumers, workers, investors and savers across the world influenced by forces which are sometimes known in advance but most often unknown and random.
Within a time-horizon as short as 12 months anything could happen and market-timing stocks or investment styles would just be speculation, not investing. Diversification and a well-balanced portfolio of both value and growth stocks remain the best long-term strategy for investors.
That said, what is the investment case for a rotation out of growth into value stocks? There are several drivers, some of which the result of possibly new structural trends.
Both investor positioning and valuation spreads are too extreme.Partly forced upon investors by the composition of major stock indices, the proportion of value funds over total equity funds has fallen to as low as 5%-10% from the 20%-25% of the years before the Great Financial Crisis. Valuation spreads between value and growth stocks remain near historical highs, even higher than at the zenith of the TMT bubble. This look unsustainable if mean reversion is to maintain a minimum of credibility as investment tool, or even only for diversification and risk mitigation.
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