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Ferris Bueller offered sage advice: “Life moves pretty fast. If you don't stop and look around once in a while, you could miss it.” The same applies to this market. It’s moving fast, and if you don’t stop and look around, you may miss a turn in sentiment.
One trend noted during the last two weeks of May was the 4.1% outperformance of large cap value stocks over large cap growth stocks.1 During this two-week run, value had one of its best five-day periods since 2009. But there is a caveat: These strong returns originated from a position of weakness, as growth had been leading value for some time. Overall, growth outperformed for the full month of May as end-of-month strength was not enough to overcome the 8% lead built by growth during the first 15 days of the month.
Here we take a deeper look into the recent value rally and explore whether it’s another “fit and start” or the beginning of a new trend.
Starting from a low point
As shown below, the rolling three-month performance dispersion between growth and value is currently 22%, which corresponds to the 96th percentile. Interestingly, however, this high level of dispersion is still 63% less than the all-time high dispersion of 53%, reached in 1999.
Source: Bloomberg Finance L.P. as of 05/31/2020. Past performance is not a guarantee of future results. Figures shown are based on index data and do not assume any fees. Returns based on the S&P 500 Pure Growth Index and S&P 500 Pure Value Index.
So, while the dispersion is currently high, it is not at maximum levels—and this holds true across various measures. As shown below, standard cap-weighted rolling three-month growth to value dispersion is 12% for large caps, below its max of 16%. The pure-factor weighted dispersion illustrated in the chart above is much wider in terms of magnitude, but also further from its max. This difference also holds true for mid-cap stocks. In the small-cap space, the pure-factor weighted dispersion is lower than the cap-weighted composition. The spread is still positive, however, as growth has outperformed value in every segment.