Value vs Growth Update

Back when this rally was finding its legs around the $SPX 1300 level I wrote about the current state of value vs growth:

Value driven bull conditions tend to be low volatility and have staying power.  Growth driven bull conditions tend to be more volatile and come at the end of the run.  Value destroying bear conditions tend to be relentless, whereas growth destroying bear conditions are violent and signal the crescendo of the move lower.  Several other similar indexes already given a nod to the value side.  We’ll see how this one plays out.

Value has outperformed since being deeply oversold relative to growth at the September lows.  True to form, the accompanying rally has proved to be a low-volatility, dependable grind higher.  The tables have now turned and value is just shy of being relatively overbought.  On a longer time frame, value has a long way to go before getting back to an equilibrium level.  This would bode well for equity markets and the bull case.  In the short-term, the value outperformance should correct.  This means that the market can pull back or growth stocks can run even higher (!).  If smart money starts to distribute and new money comes in with a greater risk appetite this could increase volatility and start a topping/blowoff process.  I still strongly feel that this market will get bought on any meaningful pullback and should be played accordingly.

I know lower quality names seem like they’ve been on a tear lately, so how can I say that value is outperforming?  The indices I’m using to measure value and growth are based on the strict calculations that Standard and Poors uses to populate their style indices.  This is not necessarily the same definition growth/value investors assign when describing their methodology, but I feel it’s a more objective measure.

As a side note: we’re about four days shy of the 2010 run higher.

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