ETF Wanderer_

The Pendulum Will Swing Back to Value Stocks

i have been tracking the value-growth spread as a part of my regular work. this month should have been really good for value out-performance, with the bounce back in financials etc.

however, if you take a look at the charts of the value-growth spreads (e.g. avg earnings yield of top decile minus bottom decile), they have broken long term trend lines and appear quite negative to say.

any correction or reversal in value-growth characteristics of any stock can happen by either the price or the value measure. for instance, suppose we use earnings/price as a measure, then a stock can change from value to growth by either change in the earnings or change in the price term - and a change in the price is what is commonly called as "value trap" - more specially a lot of companies which are value companies only because their declared earnings haven't kept inline with their prices. the level of companies in possible "value trap"s are also quite extremely high at present (i am assuming that you are well versed with all these).

i agree value should outperform growth in the long run, but currently the level of value traps and the break in the trends indicate otherwise and the bounce-back in financials is good, but we will have to wait and see if it is not a dead-cat bounce (as someone else on this blog has put it).