Is the Stock Market Trending Towards Value Stocks?
Magnificent Seven Returns Shift:
In 2023, the Magnificent Seven (Mag 7) stocks garnered their name from their significant outperformance compared to the remaining 493 stocks in the S&P 500. However, in the first quarter of 2024, we are seeing a greater divergence of returns amongst these seven stocks with Apple and Tesla in negative territory for the year. This could lead to the Mag 7 stocks no longer outperforming the market to the degree they have in the past.
Source: Wall Street Journal https://www.wsj.com/finance/stocks/the-stock-markets-magnificent-seven-is-now-the-fab-four-2dff87ac
Moderation of Future Earnings Growth Projections:
Previously, the Mag 7 consistently showed meaningfully higher projected earnings growth compared to the rest of the market. As shown in the chart below, projections now indicate a reversal, with earnings growth for the S&P 500 ex-Mag expected to surpass the Mag 7 by the fourth quarter, a trend not seen since 2022's downturn.
Source: JP Morgan Guide to Markets U.S. 2Q 2024 as of March 31, 2024
Tilt Towards Value Stocks:
This trend also bodes well for our tilt towards value stocks across our model portfolios. Historically, growth stocks (like the Mag 7) have outperformed value stocks, leading to an extended period of growth stock dominance since 2008. This is the longest stretch for growth or value outperformance since the early 80’s! Going forward, this shift could mark the beginning of a more defined trend towards value over growth.
Source: AMG Equity Style Analysis: Growth vs. Value
Have questions or want to speak with our team directly? Contact us.
Robert Amato, CFP®, CIMA®
Principal
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