It wasn't supposed to happen like this.
One of the most common predictions over the past several months (and to a certain extent, the past several years) has been that value stocks would be set to outperform growth names. After years of standing in the shadows of investors' love, growth would take their proper place atop the leaderboard, many prognosticated.
That prediction has indeed come true in 2016, though in a markedly painful manner. The S&P 500 growth index is down nearly 11 percent for the year through Monday's close, while the S&P 500 value index has fallen a bit less than 8 percent.
So long as the overall market is on the downswing, value should continue to outperform, predicts Erin Gibbs of S&P Investment Advisory Services. After all, growth stocks tend to be more reliant on underlying economic strength; in addition, the performance of growth as compared to value can be seen as a barometer of overall market sentiment.
The growth index is composed of stocks that are growing earnings and sales quickly, and have seen their share prices rise nicely over the past year (think Facebook and Amazon); the value index is made up of stocks with relatively low share prices as compared to their sales, earnings, and book values (think Wells Fargo and Procter & Gamble).
In the months ahead, "we'd prefer to be safer and stick with the value side," Gibbs said in a Monday "Trading Nation" segment. For one thing, earnings expectations for growth stocks have fallen dramatically, she says.
Societe Generale macro strategist Larry McDonald agrees that growth stocks will continue to be troubled in the short term, but he says that will presage a chance to get long those names.
"You have a good opportunity in the next couple of months to pick your favorite growth names, your favorite sectors, and buy here," McDonald said Monday. "Growth is going to get cheaper, and if we've looked over the last five or six years, we've had two or three wonderful moments to get long growth, and we're getting to one of those moments in the next few months."
"You have to buy the fear," he added.