Dear Investors,
If there’s one thing I’ve learned as a global macro investor, it’s that the market never stays the same.
Strategies that seem outdated today might just be the biggest opportunities tomorrow.
Value investing – the art of buying stocks that are trading below their true worth – has been in the shadows for over a decade.
The world has been obsessed with high-flying growth stocks, leaving many wondering: is value investing dead? Or are we standing at the edge of an epic reversal?
From 2010 to 2024, the S&P 500 value index returned just 5.6% per year, while the growth index soared by 14.8% annually.
Even in 2023, when many expected value stocks to shine, growth stocks still outperformed, climbing 32% vs. 9.5% for value stocks.
That’s a brutal stretch for value investors. But history tells us that market cycles always turn, and when they do, the shift can be dramatic.
I believe we’re about to witness a major rotation, and investors who act now stand to benefit the most.
Why Value Investing Has Been Left Behind for So Long
Let’s not sugarcoat it: value stocks have been crushed. But this didn’t happen by accident – there are clear reasons why value investing has lagged behind for over a decade.
First, cheap money fueled growth stocks. From 2009 to 2022, central banks kept interest rates near zero, making it easier for high-growth companies to expand aggressively without worrying about profitability.
This environment rewarded speculation, with investors chasing companies that promised future profits rather than those with solid fundamentals.
Now, with rates jumping from 0.25% in 2021 to over 5.25% in 2024, everything is changing.
When rates climb above 4%, value stocks outperform growth by an average of 7% per year – a key indicator that the tide may be turning.
Then there’s tech dominance. A handful of companies – Apple, Microsoft, Nvidia – have taken over the market.
Tech stocks now make up 30% of the S&P 500, compared to just 15% in 2010.
This has crowded out traditional value sectors like financials and industrials, making it harder for them to shine. But no sector dominates forever.
The last time tech stocks held this much weight was during the dot-com boom in 2000 – and we all know what happened next.
Add market uncertainty to the mix, and it’s clear why value has struggled.
The U.S.-China trade war (2018-2019), COVID-19 crash (2020), and 2025’s renewed tariff battles have all disproportionately hurt value-heavy sectors like financials, energy, and industrials.
Financial stocks, for instance, have returned just 3.2% per year over the past five years, well below historical norms.
Meanwhile, inflation shocks and geopolitical instability have kept investors clinging to the safety of large-cap growth stocks, creating a bubble in valuations that is now showing signs of stress.
Why Value Investing Is Set for a Massive Comeback
Despite all of this, I firmly believe value investing is about to roar back.
First, valuations are ridiculously stretched. Right now, the P/E ratio for growth stocks is 28.2, while value stocks sit at just 13.5 – a 52% discount.
When the gap gets this extreme, value stocks surge in the years that follow.
If history repeats, we could be looking at one of the biggest value rallies in decades.
Second, rising interest rates favor value stocks. The easy money era is over.
Investors are now prioritizing strong cash flows, solid balance sheets, and predictable earnings – all of which favor value stocks over speculative, high-growth names.
We’ve already seen early signs of this shift: since 2022, the Russell 1000 Value Index has begun to outpace the Russell 1000 Growth Index in certain quarters, a reversal of the previous trend.
Third, sector rotations are finally happening.
The past decade was all about tech, but global energy demand is set to rise 20% by 2035, according to the International Energy Agency.
This could drive a comeback for undervalued energy stocks. Financial institutions are also benefiting from higher interest rates, improving their profitability.
Industrial stocks, long ignored, are also gaining traction as global supply chains are being restructured post-pandemic.
Fourth, the best value opportunities aren’t in the U.S. While the S&P 500 trades at 19.5x earnings, Europe (13.2x) and Japan (still cheap despite its rally) offer more compelling value plays.
I see major opportunities in these markets. Japan, has seen a resurgence in shareholder activism, pushing companies to unlock value, while Europe’s financial sector remains deeply undervalued compared to its American counterparts.
And finally, modern value investing is smarter than ever.
We’re no longer just looking at simple P/E ratios. Investors – including myself – are leveraging AI-driven models, alternative data, and quantitative analysis to identify value opportunities that were once overlooked.
New analytical tools allow us to find hidden gems that traditional value screens might miss, such as companies with strong intangible assets or improving free cash flow dynamics.
What’s Happening?
Inflation, Interest Rates & Market Volatility
The biggest market wildcard today? Inflation.
We’re seeing two contrasting trends: goods inflation has dropped below 0%, but services inflation is still at 4%.
If tariffs push inflation higher, the Fed might be forced to change course.
Interestingly, despite all the inflation fears, the market is pricing in two rate cuts by late 2025 – a sign that investors expect growth to slow.
But if inflation remains sticky, the Fed could be forced to keep rates high, further strengthening the case for value investing.
The stock market is reflecting this uncertainty. The S&P 500 fell 2.6% in just five days, while the VIX (a key fear gauge) spiked 24% to 19.4.
Yet, despite all this, corporate earnings remain strong.
In Q4 2024, 94% of S&P 500 companies posted earnings growth, averaging 18% YoY gains (compared to the 14% forecast from September).
Can Tech Keep Carrying the Market?
Everyone is asking: Can tech keep leading?
Let’s look at Nvidia, which just reported a 71% earnings jump, well above the 53% forecast. But despite this, the market sold off – why?
Because declining gross margins are starting to worry investors.
And considering that Nvidia now makes up 6.1% of the S&P 500, any weakness in its stock could drag the entire market lower.
Are You Ready for the Shift?
I get it – value investing hasn’t been exciting for a while.
But markets move in cycles, and history tells us that when the tide turns, it turns fast.
Rising interest rates, sector rotations, and stretched valuations all suggest that we’re on the brink of a major value resurgence.
So let me ask you: Are you ready? Because when this shift happens, I plan to be on the right side of it. And if you’re paying attention, you just might be too.
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