But despite the fastest US monetary tightening since the 1980s, bond yields have fallen from their peaks -- spurring a rotation out of cheap stocks.
JPMorgan says the growth factor may keep winning as the latest data suggest the economy is slowing, but Societe Generale SA’s Andrew Lapthorne isn’t so sure.
“Not only are central banks not there to backstop markets as they have been in recent years, but growth stock profits are proving somewhat fragile as well,” the global head of quant strategy wrote in a recent note.
One tell-tale sign that growth firms are more vulnerable to the current economic slowdown: The group in the S&P 500 is expected to see profits falling almost 1% this year, compared with an expansion of 10% for its value counterpart, analyst estimates compiled by Bloomberg Intelligence show. The weakness partly reflects the robust growth enjoyed by internet and software companies during the pandemic lockdowns, and helps explain why the style has been more volatile this year.
The value-versus-growth question is critical for quants, who have mounted a spirited comeback since 2021 in a market less obsessed with tech darlings amid historic inflation.
In part thanks to a slant toward value equities, 60% of quants beat their benchmark in the first half of this year, compared with 39% of active funds, Nomura Holdings Inc. data show. Among hedge funds, they are up 6% this year, versus an average 4% loss in the industry, according to prime-brokerage data from Goldman Sachs Group Inc. through July.
To the likes of Asness, co-founder of AQR Capital Management whose Equity Market Neutral Fund is up 13% this year, cheap stocks can still outperform wherever rates go. His calculations show there’s no consistent relationship between yields and value-growth over the long haul, echoing previous research from GMO LLC and Robeco.
“Long-term there is very little evidence that the return of the value factor is anything other than trivially correlated to changes in interest rates,” Asness wrote in a blog post last week.
This article was provided by Bloomberg News.