U.S. value stocks are tallying their longest losing streak on record. Why they could see a comeback in 2025.

MW U.S. value stocks are tallying their longest losing streak on record. Why they could see a comeback in 2025.

By Joseph Adinolfi

Trump administration policies expected to boost value, small-cap stocks

Value stocks had a solid run after President-elect Donald Trump's presidential victory in November.

But something has shifted since the start of December. As of Friday, one popular index of value stocks within the S&P 500 was on track to fall for a 10th straight trading day. During that time, it is down nearly 4%.

According to Dow Jones Market Data, the index has already tallied its longest losing streak on record based on performance data going back to 2000. Another loss on Friday would simply extend that streak.

To be sure, the SPDR Portfolio S&P 500 Value ETF SPYV, which tracks the S&P 500 value index, is still sitting on a respectable 14% gain since the start of 2024.

There are two key reasons for the pullback, according to Jay Hatfield, portfolio manager at Infrastructure capital.

The first is that some of the euphoria stoked by President-elect Donald Trump's victory on Nov. 5 has started to fade.

At the same time, Treasury yields BX:TMUBMUSD10Y have started creeping higher again, putting pressure on stocks outside of the technology space. This has contributed to a stark divergence between growth and value stocks in December, leading to what has been one of the strongest streaks of growth-stock outperformance in recent memory.

"Rising rates are what's driving this," said Jay Hatfield, a portfolio manager at Infrastructure Capital, during an interview with MarketWatch on Friday.

What's a value stock?

The exact criteria may vary. Typically, value stocks are more mature companies that exhibit steady, but not explosive, earnings growth. They also tend to have low price-to-book and price-to-sales ratios, two key metrics used to determine whether a stock is "cheap" or "expensive."

Based on their weightings in the S&P 500 Value Index, some of the biggest value stocks in the U.S. include Berkshire Hathaway Inc. $(BRK.A)$, JPMorgan Chase & Co., $(JPM)$ Exxon Mobil Corp. $(XOM)$ and Walmart Inc. $(WMT)$

UnitedHealth Group Inc $(UNH)$. is another top value stock, as well as the most-heavily weighted stock in the Dow Jones Industrial Average. That stock has struggled over the past week, contributing mightily to the Dow's difficulties in December.

Hatfield said UNH's losses have mostly been driven by bipartisan legislation that would force major health-insurance companies to part ways with their pharmacy benefit managers, a lucrative business line.

But the stock has of course been in the headlines lately for other reasons as well.

2025 looks promising

Weakness in this corner of the market has taken many on Wall Street by surprise. But the setup heading into 2025 still looks promising, market-watchers said.

Jose Torres, senior economist at Interactive Brokers, said in emailed commentary shared with MarketWatch on Friday that the incoming Trump administration should enact policies that will ultimately be more favorable to small-cap stocks and more value-oriented names.

"An important question is which market segments are poised to benefit the most from lighter regulations and reduced taxation? Small cap and value-oriented areas tend to be domestically oriented and are the most levered to those stateside benefits since their global reach is limited on a relative basis," he said.

"They pay almost all of their taxes here and are burdened mostly by US and not international regulations, generally speaking. With that in mind, I expect the Russell 2000 and Dow Jones Industrial benchmarks to perform well in the next few months."

U.S. stocks seesawed on Friday, with the S&P 500 SPX little-changed on the day in recent trade. The Dow Jones Industrial Average DJIA was off by 64 points, or 0.2%, at 43,847, on track for its worst weekly showing since late October.

The Nasdaq Composite COMP was 0.1% higher at 19,925.

-Joseph Adinolfi

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

December 13, 2024 14:36 ET (19:36 GMT)

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