Value investors make a big comeback with one of their best months since 1978

Traders work on the floor of the New York Stock Exchange during morning trading on November 02, 2022 in New York City. 
Michael M. Santiago | Getty Images

Value investors have come back with a vengeance as inexpensive stocks pulled off a historic month of outperformance against growth names.

The Russell 1000 Value index jumped 10.1% in October, beating its growth counterparts by 4.3 percentage points. The value outperformance spread is in the 96th percentile of outcomes since 1978, according to Bank of America. The iShares Russell 1000 Value ETF (IWD) raked in $444 million inflows last month during the rally.

“We continue to prefer value over growth, with growth in the middle of a perfect storm of higher rates + weakening fundamentals,” Savita Subramanian, BofA Securities head of U.S. equity and quantitative strategy, said in a note. “Value factors have also historically benefitted from year-end seasonality.”

The comeback in value stocks followed a decade-long stagnation trailing growth, particularly technology names. This year, tech has been stifled by rising rates, which makes borrowing more expensive and diminishes growth companies’ future earnings.

Wall Street strategists have started touting value sectors such as energy, financials and healthcare to lead the rebound out of the bear market.

“We continue to prefer US large-cap value stocks, which should see continued support from higher interest rates,” said Solita Marcelli, chief investment officer Americas at UBS Global Wealth Management.

RBC head of U.S. equity strategy Lori Calvasina said small caps and large-cap value are “best places to be” as long as the strong dollar is a problem as these stocks have less international exposure.

Sophie Tremblay

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