Value: The Anti-Nineties Market Theme

The stock market is like a finely crafted symphony. It develops its themes over time, offering endless variations before transitioning to fresh movements. For the investor, as for the concert goer, excess returns result from an appreciation of themes and their shifts.

The theme of the bull market of the late 1990s up to 2000 was one of growth, highlighted by optimism concerning technology and the Internet. A stormy second movement from 2000-2003 brought this theme to a crashing close, ushering in a new theme that has seen new all-time highs in the small-cap and mid-cap indices, but not in the once high-flying NASDAQ market.

Ah, but the current market's theme is a complex one: even as we've seen the smallest cap stocks stumble since May, the value component of the market has emerged triumphant relative to growth stocks. Below we see the iShares S&P 500 Growth ETF (IVW) charted against the iShares S&P 500 Value ETF (IVE). Somewhat perversely--and in a complete reversal of the growth bias of the late 1990s--value has become the new growth.

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The market is a fine composer: it does not introduce and then toss away its themes. Shifts along the "style box" represent reallocations of capital that don't fade away within days or weeks. Increasingly, with an expanding universe of ETFs, individual investors can track and participate in these shifts.

So what do we call a current theme that sees all-time new highs in the Dow Jones Industrials, outperformance of value over growth, and underperformance of technology? The word "defensive" comes to mind: this bull market is the anti-Nineties.