With the lead for Value over Growth since Halloween 2025 widening last week, we were again reminded that it is a market of stocks and not simply a stock market.
Indeed, stocks that score more favorably on fundamental valuation metrics have been performing much better of late,…
…while the sharp shift in sentiment against often-profitless neoclould companies, such as Coreweave, as well as hyperscaler credit worries and debt-financing concerns continue to weigh on many of the heretofore top-performing AI-infrastructure stocks.
While we are equal-opportunity stock pickers and not governed by hard and fast Value vs. Growth distinctions, the charts above illustrate that the majority of our recommendations reside in our benchmark Bloomberg 3000 Value index. Of course, that does not mean that a rising or retreating tide lifts or sinks all boats equally, as the wide dispersion of returns since the end of 2024 and since the end of Q3 2026 will attest, so we always advocate broad portfolio diversification.
And, though we understand that fickle traders often care little about fundamental valuation metrics, while earnings estimates are never assured, it is hopefully reassuring for those who share our Value mindset that Year 2 projected P/E ratios are reasonable. This is especially true, given the AI “Bubble” talk today and the comparisons to the Dot-Com euphoria at the turn of the Millennium.
Certainly, anything can happen as we move forward, and we have taken plenty of money off the table over the last seven quarters on the AI trade, but with 41 of the 50 stocks above residing in the Bloomberg 3000 Value index, we continue to like how that market gauge compares to its Growth counterpart,…
…especially as a century of market history shows that less expensive stocks have had the better long-term returns.
To be sure, past performance is never an assurance of future performance or even profitability, but those worried about higher interest rates,…which have fallen sharply this month,…
…should be comforted by what more than six decades of history shows for AVERAGE forward returns for Value stocks, not to mention Dividend Payers, when the yield on the 10-Year U.S. Treasury has been higher than the current 4.99% level.
And it is the same story for one of the other bogeymen spooking many market participants these days, namely Federal Reserve tightening. While the betting odds suggest little chance of a Fed rate hike at the FOMC Meeting this week,…
…the Fed Funds rate remains on the low side by historical standards,…
…and 55 years of evidence shows that, ON AVERAGE, stocks in general “prefer” a higher central bank lending rate than a lower!
Yes, we understand that this data differs from the assertions made in the financial press by many supposed market experts, so we think it valuable for those who share our long-term time horizon to look at what actually has happened in the past versus what one might think would have happened.
As Mark Twain was purported to have said, history doesn’t repeat, but it often rhymes, so with rising worries about European debt, not to mention the violent protests happening in France and elsewhere on the Continent, we offer the reminder that we saw similar events play out in 2010, with the total return on the S&P 500 since the edition below of The Economist was published more than 16 years ago now standing at 768% through 10.23.26, or 14.0% per annum.
It’s a similar script when we have had rapid spikes higher in interest rates,…
…and oil shocks,…
…while all prior disconcerting events on the headline timeline have been overcome in the fullness of time.
There are minus signs associated with some of the individual returns in the tables above, so by no means are we suggesting that stocks will always move northward in the near-term. Setbacks occur every year,…
…and the number of 5% pullbacks and 10% corrections over the past century have each been in the triple-digits,…
…but history shows that the longer one holds stocks the less the chance of losing money.
Contrary to what some might think, given that many view the markets as a giant casino, the odds are in favor of the equity investor, provided he or she remembers that the secret to success in stocks is not to get scared out of them. This is because the economy grows over time,…
…which fuels corporate profit growth,…
…with the near-term outlook for GDP expansion still favorable,…
…and even decent growth for the economy projected for next year in the latest outlook last week from the Conference Board.
“The US LEI was flat in September. However, due to an upward revision to July’s data, the Index is at a higher level than last month’s report for August,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board. “Five out of ten components made positive contributions to the LEI in September, led by the interest rate spread and average weekly hours in manufacturing. Nevertheless, these gains were offset by a large decline in consumer expectations and much smaller negative contributions from stock prices, new orders for capital goods and building permits. The LEI’s six-month growth rate increased slightly, which suggests the economy is still growing and will continue to grow, but is becoming less dependent on consumer spending and more dependent on business investment. The Conference Board now expects real GDP to grow by a 2.2% annualized rate in 2026, with our outlook for 2027 at 2.0%, higher than previously forecasted.”
So, while we won’t be surprised by near-term market turbulence, especially as there is still a week to go in the historically weak September-October time span, we see no reason to alter our enthusiasm for the long-term prospects of our broadly diversified portfolios of what we believe are undervalued stocks.
As the chart above illustrates, we are now just five trading days away from the start of the seasonally favorable period, while those fretting about the looming election historically have been much better served casting their vote at the polls and not with their equity portfolios…if history can be a guide.
Stocks in the News
