Summary
Value stocks outperformed growth stocks in 2022 and have taken an early lead in 2025. That's a recent rarity, as for the past decade-plus, the performance record has favored growth. But growth has not always been the leader. In the 2000-2010 decade, including the Great Recession, value stocks were better performers, advancing an admittedly low 8% -- but still better than growth, which declined 15%. Why has the recent deviation in performance favored growth? For one thing, the make-up of the economy has changed. In a service-based economy, intangible assets (software code, brands, even supply chains and distribution channels) are much more important than fixed capital investments in machinery. Another factor, in our view, has been the level of interest rates. Analysts put a value on stocks using discounted cash flow models. These models estimate future cash flows for companies and discount them back to the present at the company's cost of capital in order to estimate current net asset value. If interest rates are low, discount rates will be low, and the future profits will be worth more, favoring growth stocks. The tide turned in 2022. The rollout of COVID
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