Value closing gap with growth
A naive overview of U.S. equities in 2019 looks good. U.S. large caps are up more than 18% and small caps have added over 13%, while growth stocks gained more than 20%. But pushing the calendar back only three months further shows equity markets have barely broken even since Sept. 30, 2018. Furthermore, value stocks have been rapidly closing the return gap with their growth counterparts. Value, which typically outperforms growth in periods of market stress, outpaced growth in the fourth quarter before quickly losing ground by the end of August.
Currently, the return spread between the Russell 1000 Value index and the Russell 1000 Growth index is -48 basis points since the end of the previous third quarter, the lowest it's been since the market volatility in April and May. What is more notable this time is the rate at which the gap has closed. Value gained 398 basis points on growth since the end of August.
The spread between growth and value stocks can be used a measure of investor sentiment. Value stocks are generally seen as safer bets relative to growth and will typically pay a higher dividend.