Among stock investors, this was supposed to be the year the cheapskates beat the big spenders.
But in another consensus-confounding turn, value stocks have badly lagged growth shares - just as bond yields have dropped and market volatility has been muted, contrary to the popular predictions.
The Russell 1000 Value index - which tracks cheaper, more economically sensitive names - is up a mere 2.1 percent for 2017 to date, dusted by the 9.2 percent surge in the Russell 1000 Growth, which is driven by pricier shares of businesses whose expansion is not as reliant on the broad economic trend.
Russell 1000 Value vs. Russell 1000 Growth:
(Rising line means value outperforms and vice versa. )
Remember FANG - that juggernaut foursome of adored tech stocks (Facebook, Amazon.com, Netflix and Google parent Alphabet) that nearly carried the entire market in 2015? That group is up more than 17 percent year to date, versus about 5 percent for the S&P 500. The ratio of the Nasdaq Composite index level to the S&P 500 is now higher than at any time since the tech bubble year of 2000.
The iShares Edge U.S. Momentum Factor ETF (MTUM), which rides the stocks showing the most upside persistence, has gained almost 10 percent, while the Deep Value ETF (DVP) - a small, but representative vehicle for extreme bargain hunting - is ahead by less than 3 percent. Utilities, those "safe" stocks commonly viewed as overvalued, are up 6.5 percent, while the S&P Bank ETF (KBE), a favorite of the economic-acceleration and policy-bull crowd, is down 2.5 percent.
This growth-stock dominance ended a dramatic, but brief, resurgence of the value style in 2016, most of which occurred after the election and went by the names Trump trade, reflation trade or cyclical rotation. Lindsey Bell, strategist at CFRA, points out that last year saw the widest outperformance by value since 2006. But that year was the last of seven straight years of value leadership, while before 2016, growth shares had paced the market for several years.
The failure of cheaper stocks that are tethered to the economic pace and higher interest rates to continue leading the way in 2017 is all about softening growth expectations, ebbing bond yields and dimming hopes for quick fiscal stimulus from Washington.
So now the crucial unknowns: Is the market giving investors a chance to reload on value stocks such as banks, industrials and energy names? Have we gone through another now-familiar first-quarter lull in U.S. growth, only to see activity quicken again?
Brian Belski, chief investment strategist at BMO Capital Markets, is answering yes to the above questions. He says 2017 should still feature the conditions that tend to favor a value tilt. Namely, value does better when GDP and corporate earnings growth are both re-accelerating and when overall equity valuations are above average. As of now, those criteria should be in place for 2017, though right now it's not quite clear that GDP is set to be much faster than last year.
It's certainly true that value stocks have had nice, meaty corrections, skimming away foam off the froth following their post-election rally and now stabilizing again. Bank stocks fell a full 10 percent from their all-time high in the past two months, and the Dow Transportation Average dropped 8 percent. So if Treasury yields lift from the low end of their range again and the macro data hold up reasonably well, these areas could well seem ripe for a rebound.