A rotation into value stocks from growth could grow stronger in the new year
Value stocks have enjoyed a late-year resurgence, after underperforming earlier in 2025.
TL;DR
- Value stocks have underperformed throughout 2025 but have seen a late-year resurgence.
- Value stocks are outperforming growth stocks, as indicated by the performance of the iShares Russell 1000 Value ETF (IWD) compared to the iShares Russell 1000 Growth ETF (IWF).
- Investors concerned about a potential AI stock bubble are seeking cheaper, less risky assets, favoring value stocks.
- A broadening market rally, with non-technology stocks and small caps leading in December, indicates a sustainable bull market.
- Favorable economic conditions, including potential interest rate cuts, productivity boosts from AI, and tax cuts, could benefit a wide range of companies.
- Banks and consumer discretionary stocks are identified as potential beneficiaries of this trend.
- While small caps are cheaply valued, cheapness alone does not guarantee outperformance, and specific stock performance will depend on broader market conditions.