Veni, Vidi, Vici, Value: The Value vs. Growth War-- Does Value Conquer Growth Coming out of Recessions?

By Dr. Leila Heckman, PhD, June 23, 2020

The coronavirus crisis has pushed the U.S. into a recession. Looking forward, whether the economic pattern for recovery is V shaped or U shaped, it would be helpful to gain insight as to whether Value stocks historically have done better than Growth stocks as the U.S. comes out of a recession. One can argue as the economy improves, Value stocks—which tend to be in cyclical industries and become inexpensive during a recessionary selloff—should benefit the most from economic recovery with earnings for Value stocks rebounding more dramatically than for Growth stocks.

In the 12 years since the recession of 2007-2009 (The Great Financial Crisis), Growth has outperformed Value substantially with new technology/new economy Growth stocks contributing to this outperformance. But what about looking out just 1-year or 6-months since that recession? And what about looking at all the recessions over the past 40 years? What can they tell us?

In this analysis, we compared the performance of the Russell Value and Growth indexes as the U.S. recovered from the 5 recessions (not including the current one) since 1979. Return data is available for the Russell Value and the Growth Indexes since January 1979. For the purpose of this analysis, the exact dates of recessions are from the National Bureau of Economic Research (NBER), which is an American research organization known for providing start and end dates for recessions in the United States. From the NBER website, “the NBER does not define a recession in terms of two consecutive quarters of decline in real GDP. Rather, a recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales”.

Of course, in general, one does not know the exact dates a recession starts or ends until after it is over although through most of it, we know that we are in a recession. The question is when to start measuring the performance of Value vs Growth as the economy comes out of the recession. For that, we have looked to the 3-month change in the PMI. Most of the time the PMI 3-month change is a small number (both positive and negative). During a recession, the 3-month change can become a large negative percentage, but when the economy is coming out of a recession, the 3-month change can become a large positive percentage. For measuring the relative performance of Value vs Growth coming out of a recession, the signal we use is the first month in which the 3-month change in the PMI turns positive 10% or more. This positive change can happen during a recession or shortly after it ends. Once we have the PMI signal, we measure the performance of each of the Indexes over the next 6-months and the next 12-months.


1For the recession of 07/90 – 3/91, 3-month PMI change of 9.1% was used.

The first chart shows the differences between the total return of the Russell Value and Growth Indexes over the next 6-months after the PMI 3-month change was 10% or more. Since 1979, in the 6-months after the recession and using this PMI based signal for when to start measuring performance of the two Indexes, the Russell Value Index outperformed the Russell Growth Index in only 2 of the 5 recessions. The only significant outperformance of Value was during the aftermath of the 03/01 – 11/01 recession, which included the dot com bust in the early 2000’s.

Outperformance 1

However, if you are willing to look 12-months out, the picture changes. The second chart shows the differences between the total return of the Russell Value and Growth indexes over the next 12-months after the PMI 3-month change was 10% or more. Here the pattern is more favorable for Value. Since 1979, in 4 out of the 5 recessions and using this PMI based signal for when to start measuring performance of the two Indexes, the Russell Value Index did outperform Russell Growth Index. The only exception was during the aftermath of the oil shock-led recession of 07/90 - 03/91. The average outperformance of the Russell Value Index over the Russell Growth Index over the 5 recessions was 4.8%.

Outperformance 2

As of the end of May 2020, the 3-month change in the PMI was -14% so the signal is not pointing to Value outperforming Growth on a consistent basis as of yet.

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