JPMorgan Says Prepare to Dump Value Stocks for Growth

(Bloomberg) -- Last year’s strong outperformance in cheaper, so-called value stocks over growth peers is likely to reverse soon as the economic recovery slows, say JPMorgan Chase & Co. strategists.

Most Read from Bloomberg

Nigeria Latest: Tinubu Wins Ekiti Vote; Next Briefing at 11 a.m.

Covid-19 Pandemic Most Likely Came From Lab Leak: WSJ

Ukraine Latest: Saudi Foreign Minister in Surprise Visit to Kyiv

Goldman Turns to ‘Make-or-Break’ Unit as CEO Solomon Put to Test

Musk Deflects Criticism of Dilbert Cartoonist’s Racist Comments

A market favorite in 2022, the value trade is starting to lose its sheen. The next move for investors in the following month or two might be to go “outright underweight value versus growth,” the team led by Mislav Matejka wrote in a note.

“Our core view is that in the second half, market will be moving back to the recession trade, but even if the opposite scenario gains traction, value might not be the best place to be,” he wrote on Monday.

Value stocks have started to stall against growth peers recently, after outperforming them last year by the most since the dotcom bubble of 2000. While the cheaper shares got a boost from rising bond yields and inflation, investors are starting to price in more hawkish policy, which may reduce support for the trade as yields peak.

Value stocks such as financial and commodity companies surged since the market low in September, while at the same time, rising rates weighed on growth stocks as highly valued sectors such as technology suffered from a profit squeeze. Initially, the trade was also supported by better-than-expected macro data.

But now, Matejka says, economic activity momentum is likely peaking and could be rolling over soon, while stalling inflation expectations suggest the value factor shouldn’t fare so well relative to growth from here on.

The strategists currently hold a neutral stance on value versus growth. While they see the cheaper stocks as more interesting than growth peers on a two-to-three years horizon, they expect the group to weaken this year.

“Better relative tech performance than what transpired last year would ensure value factor is not a winner this year,” Matejka wrote.

--With assistance from Kit Rees.

Most Read from Bloomberg Businessweek

Higher Interest Rates Slam Stocks and Profits But Spare Workers

The Green Energy Revolution Needs a 211-Mile Road Through Pristine Alaskan Wilderness

Germ-Zapping Lasers Help Cut Down on Infections After Surgery

After Multibillion-Dollar Fintech Binge, Wall Street Has a Writedown Hangover

How Ben & Jerry's Ended Up at War With Itself

©2023 Bloomberg L.P.
Click Here To Get Funded!