Value Stocks Are Outperforming Growth—at Least for Now

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New York utility Consolidated Edison is among the value stocks that performed well in September.


Gina M Randazzo/Zuma Press

U.S. stocks just recorded their worst September performance in nearly a decade. For bargain-hunting investors who scooped up cheap stocks, however, the slump wasn’t so bad.

Value stocks—often defined as companies whose shares trade at a low multiple of their book value, or net worth—outpaced growth stocks for the month as investors turned away from the fast-growing technology companies that had long powered the market higher. Instead, many investors looked for opportunities to scoop up shares in industries such as materials, transportation and utilities, many of which have been badly beaten down by the coronavirus pandemic this year.

The change in strategy pushed the Russell 1000 Growth Index down 4.8% for the month, ending its record 11-month winning streak over its value counterpart. The Russell 1000 Value Index, which measures the performance of large-cap value companies, fell just 2.6% in September.

Among the biggest beneficiaries were value stocks such as building-materials supplier

Martin Marietta Materials Inc.,

New York utility

Consolidated Edison Inc.

and delivery giant

FedEx Corp.

All jumped 9% or more in September.

Meanwhile, the S&P 500 fell 3.9% for the month, its steepest September loss since 2011. The index was dragged down by the recent pullback in megacap technology companies such as Inc.

Highflying momentum stocks like

Tesla Inc.

also pulled back. Shares of those companies lost 8.8% and 14%, respectively.

Some analysts and investors say the shift simply reflects temporary profit-taking among traders who have pulled their money from growth stocks and put it to work in less-expensive shares. Yet others see the recent value-investing uptick as the start of a trend that could be here to stay. A slowly mending economy and the arrival of a coronavirus vaccine could lift value stocks higher as consumers boost their spending, they say.

A potential Democratic sweep of the White House and Congress might also offer a boost, as some analysts say they expect Democratic presidential candidate Joe Biden’s corporate tax plan to more deeply impact some growth sectors, such as technology. Meanwhile, continued antitrust scrutiny of big tech companies from both presidential candidates could also weigh on the growth trade, market observers say.

Even more, they say, as investors continue to look for gains in an environment with near-zero interest rates, many value stocks offer a promise of dividend yield.

Both President Trump and Joe Biden could push antitrust scrutiny of big technology companies, analysts say.


alexander drago/Reuters

“Investors are looking for other opportunities…so where do I go if I want either a market return or some kind of cash yield?” said Tom Stringfellow, president and chief investment officer of Texas-based Frost Investment Advisors. “Most value stocks have some, or decent, yield. So if I have a chance for appreciation and I have a yield of 2 or 3, maybe 4%, then all of a sudden my investment choices become a little more narrow [with opportunities in] a few of the technology, but a lot of the value and cyclical stocks.”

“There really aren’t a lot of alternatives,” Mr. Stringfellow added.

Despite investors’ optimistic outlook for value investing, it isn’t uncommon for value stocks’ outperformance to be short-lived. Shares of manufacturers, banks and energy companies climbed in late May, pushing value indexes higher. Weeks later, however, the trend reversed, and growth companies soared again—one of many U-turns since the financial crisis of 2008.

Growth stocks, or those that offer higher-than-average profit growth, have largely driven U.S. stocks higher for more than a decade, led by megacap technology companies that have posted eye-popping gains. Even with its September outperformance, the Russell 1000 Value Index is still down 13% in 2020, compared with the 23% gain that the Russell 1000 Growth Index has posted.

Yet some investors and analysts argue that the recent outperformance of value stocks might be more enduring—and already, small signs of a shifting tide have emerged. A September

Bank of America

survey found that a greater number of fund managers expect value to outperform growth over the next 12 months, a reversal from the month before.

Meanwhile, recent fund flow data show that investors have been pulling money out of sector exchange-traded and mutual funds with growth characteristics. For example, traders pulled $1 billion out of technology funds during the week ended Sept. 23, the largest outflow since June 2019, according to a Bank of America analysis of data from EPFR. The outflow coincided with inflows into sectors including materials and utilities, Bank of America said.

Some investment strategists say that while they have been shifting some of their equity into value stocks, they are still being careful about the cyclical sectors that they choose.


Do you think value or growth stocks will perform better to finish the year? Join the conversation below.

“When we talk about value per se, we are being very particular,” said Christopher Harvey, head of equity strategy at Wells Fargo Securities. He said the firm has found “attractive valuations” in spaces including industrials, financial services, consumer discretionary and real-estate investment trusts.

“What we’re trying to do is barbell high quality with deeper value,” Mr. Harvey said.

Meanwhile, Chris Zaccarelli, chief investment officer of Independent Advisor Alliance, said his firm shifted some of its growth stock exposure into value within some portfolios in September “for the first time in years.” Mr. Zaccarelli said his firm is specifically looking more at sectors including industrials and financials.

Investors said there are many reasons to be excited about value in the longer term. In a Tuesday note, Bank of America analysts said value stocks are trading at a near-record discount relative to momentum stocks, or those that have risen the most over the past 12 months. The analysis, which compared the forward price-to-earnings ratios for value stocks against their momentum counterparts, found that the only other times the discount was this steep was 2003 and 2008, after which value outperformed momentum over the next year.

“We think this underperformance [of value stocks for years] is cyclical, not structural,” said Bob Hum, U.S. head of factor ETFs at


which has recently seen significant inflows into some of its value-based iShares exchange-traded funds. “So many clients today are short or underweight value. We think that is one of the biggest risks in client portfolios today.”

Corrections & Amplifications

Highflying momentum stocks like Tesla have pulled back in September. An earlier version of this article incorrectly said the electric-vehicle maker’s stock had weighed on the S&P 500. Tesla shares aren’t included in the index. (Corrected on Sept. 30)

Write to Caitlin McCabe at

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Appeared in the October 1, 2020, print edition as ‘Value Stocks Beat Growth, in a Shift.’

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