4 reasons why value stocks are overdue for a comeback

Welcome to the newly formed Value Stock Contrarian Commiseration Committee. 

True, it doesn't actually exist. But if it did, it would boast distinguished founding members like the recently retired investor Warren Buffett; the father of value investing, the late Ben Graham; and his protégé, the late David Dodd. 

We of the VSCCC have come together after weathering one of the longest value droughts in recent history. We celebrate what we see as the imminent return to sanity in stock valuations — one driven by investors who value tangible assets over speculative ideas and prize near-term free cash flows over high-valuation multiples on uncertain and distant cash flows.
  
READ MORE: Value versus growth stocks: How advisors are guiding clients

Value stock reset now in motion

But before looking forward, we must look back at two factors that played into growth-stock dominance: low interest rates and market concentration. 

From the global financial crisis through the pandemic economy of the early 2020s, central banks lowered benchmark interest rates to near or below zero — and kept them there for 13 years. With bond returns after inflation and taxes negative in many cases, investors sought something — anything — with better returns. The reach for capital appreciation extended to momentum fund strategies, crypto, growth stocks, meme stocks, etc. — fundamentals and cash flows be damned.

By the end of 2025, the U.S. stock market reached its highest concentration since the 1930s, with the Magnificent 7 representing some 35% of the S&P 500 Index. Arguably, Mag 7 dominance was based on near-monopoly profits in search engines, digital advertising and cloud computing, which became black holes of cash flow in the U.S. economy. 

This level of extreme concentration has historically preceded mean reversion — just look at the "Nifty Fifty" boom of the early 1970s or the 1990s dot-com bubble. It is trite but true that history repeats. Typically, we see 10-year-plus swings when one investment style dominates the other. The latest growth cycle has been a very long swing indeed, but that may change, judging by these four catalysts in motion. 

1. The dream of zero rates is over

The U.S. government is borrowing to pay interest on existing debt, compounding an already unsustainable trajectory. No organization can sustain 25% of revenues devoted to interest expense indefinitely. Against this backdrop, a meaningful return to sub-2% rates is unlikely.  

Investors should expect sticky inflation and higher-for-longer rates. In this environment, capital gravitates toward value: higher dividend yields, strong balance sheets and cash generation today rather than promises of tomorrow.

READ MORE: What the SCOTUS Trump tariff decision means for portfolios

2. Puts and takes on inflation/deflation

The decades-long deflation driven by globalized, low-cost manufacturing and technology deflation reversed during COVID. 

Now, tariffs and reshoring are adding costs throughout the supply chain. The same forces that once exported lower prices now add to cost inflation. However, AI has the potential to bring back Moore's Law-levels of deflation in a big way.

3. Capital discipline is back

When "free" money is off the table, markets grow discriminatingly. A compelling vision for future profitability is no longer sufficient. Investors are demanding companies that have tangible assets, solid financials and free cash flow today — and they are starting to find them in value stocks.

READ MORE: Foreign equities top advisors' list for increased allocations

4. International markets take the lead — and tilt value

Following President Donald Trump's 2024 election victory, U.S. markets surged to record levels as investors priced in deregulation, corporate tax cuts and Mag 7 gains. At the same time, international equities languished, and many investors threw in the towel — at precisely the wrong moment.

Just look at 2025 numbers: The MSCI World ex-USA Index gained 29.2% compared to the S&P 500's 16.39%, with the gap widening further in 2026. The outperformance is structural: International markets are inherently more value-oriented, with greater exposure to cyclicals and far less concentration in high-multiple technology.  

 The value rotation is also arriving on U.S. shores. The Russell 1000 Value Index posted a roughly 14% edge over the Russell 1000 Growth Index in the November 2025 to February 2026 period — a significant performance gap in a short window.

Value stocks and historical data

But don't just take the word of our long-beleaguered committee for the coming rise in value stocks. Data covering nearly a century in the U.S. and 50 years in non-U.S. markets supports the notion that value stocks have higher expected returns. From 1927 through 2022, value stocks have historically outperformed growth stocks by an average annual rate of 4.4%, according to data from Dimensional.

While the volatility might be hard to stomach during extended periods of value underperformance, hold steady with me and my fellow committee members — because the potential recovery may more than compensate for the wait.