The Value Cycle

As interest rates have risen under Fed policy, we may be entering a new market cycle. What does this mean for investors?

The Federal Reserve’s decade-long low-interest-rate policy has been a tailwind for the continuation of a growth dominated market for most of the last decade. Two factors to consider:

  • Recent policy changes signal that the Fed is interested in returning to a higher interest rate environment in a methodical way; we have seen interest rates increase five times over the past 18 months.1 The prospect of tariffs combined with currently low unemployment rates and signs of wage growth (all inflationary factors) may indicate that the Fed will continue to raise rates in the near future.
  • As we see in the illustration below, current market conditions combined with historical data demonstrate that this may be the inflection point, where the market enters a value-driven cycle. With that in mind, now may be a good time for investors to take a look at their portfolios to consider whether it makes sense to move toward more of a value bias in the near term to capitalize on the beginning of the cyclical shift.

Value has outperformed growth in 92% of 10-year rolling periods since 1957.2

The high correlation between value outperformance and interest rates indicates a positive linear relationship between the two.

At Anchor Capital Advisors, our strategies are based on fundamentals, designed to provide competitive returns over the course of a market cycle. As rates rise, we anticipate value stocks returning to their normal position, with value at a premium overgrowth.

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