Value Stocks Are Beginning to Break the Charts

Value stocks have lagged behind the broader market for so long that more than a few of Wall Street’s best and brightest declared that investing in companies whose shares are trading at a deep discount despite stable and predictable earnings made no sense. That just shows why it often pays to tune out the countless talking heads opining on markets.

The S&P 500 Value Index is on a tear, setting a record this week. The benchmark is now up 21.1% for the year, topping the 19.6% gain for the S&P 500 Growth Index, which tracks shares of companies trading at a premium and have the potential for faster earnings growth. Those who scrutinize past trading patterns to predict future results are especially encouraged that the value gauge has broken out of the top end of the trading range that it has been stuck in since early 2018. To them, this is a clear bullish signal — and not just for value stocks. “Technicals not only remain positive for the group, but cross-market correlations and relationships with macro data suggest the price action points to an improved outlook for broader risk markets,” the strategists at JPMorgan Chase & Co. wrote in a report Wednesday. To them, what’s really exciting about this move higher is that it’s being led by financials, the largest sector weighting in the value index. On a fundamental basis, higher share prices for banks, brokers, insurers and similar companies is a good sign that investors are betting the economy may be able to avoid a recession that many economist forecast may hit next year.