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ARE LONG-SUFFERING value investors and those with a large allocation to foreign stocks finally about to get some relief? The new year has seen significant relative strength by both areas of the market. Meanwhile, after peaking in the first half of 2021, highflying small- and mid-cap growth companies continue to get hammered. Mega-cap tech shares have also lately succumbed to selling pressure.
What’s worked thus far in 2022 are the boring old large-cap blue chip names. The winners during this year’s first five trading days include Ford, Bank of America and Exxon Mobil. The trend began in early December, when large-cap growth stocks started to underperform large-cap value. Overall, Vanguard Value ETF (symbol: VTV) is up an impressive 8.6% since the calendar flipped to December.
Developed market large-cap stocks have also enjoyed a tailwind of late. Vanguard FTSE Developed Markets ETF (VEA) is up a respectable 4.3% since Dec. 1. Meanwhile, Invesco QQQ ETF (QQQ), which tracks 100 large Nasdaq stocks, is down 3.4%.
While large-cap value shares and foreign stocks have recovered, another relative loser from last year has yet to see a bounce: the U.S. extended market. Jack Bogle, the founder of Vanguard Group, created the Extended Market Index Fund in 1987 (VEXAX) to allow investors to inexpensively access U.S. stocks beyond the S&P 500. The extended market is down 3.8% since early December, on par with the tech-heavy Nasdaq 100’s lousy performance.
It’s important to remember that market cycles can run for years. If value and international stocks are indeed making a comeback, the gains could last well beyond January—and, indeed, long beyond 2022.
I think that’s exactly what’s happening. It tends to happen in concentrated leaps for value, and I expect value will reign for several years. Of course, I try never to forget I could very well be wrong, dogmatism in investing is a bad idea.
I’m definitely tilting value at this point, after having been tilted growth a couple years back. Time will tell if I’m overestimating my understanding of these market segments.