After over a decade of underperformance, value shares trounced growth stocks in the fourth quarter of 2020. The durability of this value rally has come into question, while others are asking whether they have missed the opportunity to participate in the recovery. Encouragingly, we believe there are several factors that can help sustain the rotation back to an investment style that has underperformed for so long.
We believe that value stocks may have only begun to regain the ground they have lost to growth. The macroeconomic environment appears to have turned more supportive, and value stocks could be boosted by rising interest rates, higher inflation, and positive economic growth.
Fig. 4: Four Reasons Why This Value Recovery May Have Only Just Begun Powerful drivers look set to support rotation back to value
For illustrative purposes only. Source: T. Rowe Price.