Value Stocks Leading This Year

Though animal spirits have returned to markets, the chaos that underpinned the first half of the year lies just beneath the surface. While markets always deal with uncertainty and can often—contrary to popular belief—thrive in its midst (like the market “climbing a wall of worry” in 2009 during the financial crisis and in 2020 during Covid), the macroeconomic smog is thicker than usual.

Tariffs or no tariffs, recession or growth, an independent Fed or one hamstrung by the executive branch, rate cuts or not, a big beautiful tax cut or out-of-control deficits: arguably, economists have their work cut out for them.

In this tempest of confusion, a welcome sea-change is occurring in markets: value is finally outperforming growth. Even with the recent resurgence in speculative stocks, the Schwab US Large-Cap Value ETF (SCHV), is outperforming its growth sibling, the Schwab US Large-Cap Growth ETF (SCHG) +8.35% versus +4.34% year-to-date. Though this follows a prolonged period of value underperformance, and though small-cap value has not participated in the rally, the large-cap value outperformance is now undeniable.

I would argue that value always emerges eventually. After all, value has trounced growth over the long term, even across the past century where tech revolutions have punctuated every decade. Given that the laws of economics will never be repealed, this makes perfect sense. A buyer of value stocks pays less per dollar of earnings than does a buyer of growth. Eventually, this bargain approach is vindicated by returns as rational pricing returns to markets. This is why Warren Buffett is the greatest investor of all time, eclipsing even the best growth investors.

Value stocks are especially attractive against a backdrop of unpredictability, as investors are less willing to pay a premium for uncertain profits. This may explain value’s comeback, or it may not. Regardless, stocks trading at a discount to their intrinsic value are likely to continue to do well over the long term. It had been a frustrating stretch for value investors, but 2025 looks to be a reward for the patient.

Note: James Berman owns the SCHV in his client and personal accounts.