Key Takeaways
- Value stocks outperformed growth stocks in January after a period of underperformance in 2024.
- While growth stocks tend to show long-term dominance, both value and growth stocks displayed near parity on a monthly basis.
- Key drivers of market growth in January included the financial services, healthcare, and communication sectors, with technology lagging behind.
Following a challenging year where value stocks lagged behind growth by nearly 10%, January marked a turnaround. The Morningstar US Value Index recorded a gain of 4.5%, surpassing the 3.9% results of the Morningstar US Growth Index. Meanwhile, the blend stocks category, measured by the Morningstar US Core Index, fell short with a 2.8% return. The significant gains in value stocks were fueled mainly by healthcare and financial services.
Key stocks that spurred the growth of the US Value Index in January consisted of:
- JPMorgan Chase JPM
- Walmart WMT
- UnitedHealth Group UNH
- International Business Machines IBM
- Wells Fargo WFC
Despite outperforming growth and core stocks overall, a closer inspection of the Morningstar Style Box reveals a more complex picture. The mid-cap growth segment led the nine style box categories with a robust 6.1% climb in January, followed by small-cap growth at 5.1%. The large value category secured third place with a 5% rise, while mid-cap value was the laggard, gaining only 3%.
Growth vs. Value Stock Performance History
The outperformance of value stocks this month aligns with historical trends. Over the last two decades, value stocks outperformed their growth counterparts in 46% of months, indicating a fairly balanced market leadership pattern. This number slightly dipped to 43% over the past decade but has returned to 46% across the last five years.
In months when growth stocks took the lead, they did so by an average margin of 2.5 percentage points, yielding an average monthly return of 2.9%. In contrast, value stocks outperformed by an average of 2.3 percentage points with a lower average monthly return of 1.1%. Such trends indicate that while both categories enjoy similar frequencies of outperformance, growth stocks tend to deliver larger gains, primarily during bullish market conditions.
Which Stocks Led the January Value Stock Rally?
In a detailed analysis of the US Value Index’s January performance, financial services and healthcare stocks emerged as the leading contributors to its impressive 4.5% rally. Financial services, constituting 25.2% of the index, accounted for 1.8 percentage points of the gain, with healthcare stocks contributing 1.1 percentage points from a 16.7% index share.
Highlighting individual stock contributions, JPMorgan topped the list with a gain of 0.5 percentage points, significantly above Walmart’s contribution. UnitedHealth, IBM, and Wells Fargo each added 0.2 points. Meanwhile, major players like JPMorgan and Wells Fargo saw significant share price increases following robust fourth-quarter earnings reports, with both recording double-digit gains for the month.
Conclusion
The contrasting performances of value and growth stocks in January illustrate the dynamic nature of the market. While value stocks marked a notable comeback, the ongoing trends highlight the resilience of growth stocks over the long term. Investors are urged to remain vigilant, as the market’s ebb and flow can significantly impact portfolio strategies. Ultimately, understanding these trends can enhance investment decisions for both immediate gains and long-term growth in the stocks market.