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InFocus
Don’t Settle for Average –
A Reverse Cap S&P 500 Index
April 13, 2021
Since October 31, 2017, value stocks have bested growth stocks by 68%, as evidenced by the MSCI Value-Factor Equity to the MSCI Value-Momentum-Factor Equity Ratio at 1.68 (top of Figure 1, black line). Since November 6, 2020, value has crushed growth stocks and most price momentum strategies. The ratio’s advance rocketed higher over the first 50 trade days after Nov 6, and then consolidated before soaring again over 59 trade days (mid-January 2021 through mid-March 2021). Value stocks usually best growth stocks when inflation and interest rates rise. The U.S. Treasury 10-year T-note yield (UST10Y) rose from 0.51% on Aug 4, 2020 to 1.78% in late Mar 2021. More importantly the 3-month rate of % change on yields soared (middle panel). Eventually, UST10Y may normalize to around 2.5% to 3.5% (based on inflation and economic growth factors). Even if long-term real economic growth (GDP) simply stabilizes near 2.5%, value should outperform growth stocks. Near-term, GDP is expected to be about 10% and near 6.5% for all of 2021.
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