Value Stocks: A Comeback in 2025?

Value stocks, which have been out of favor for several years, may be poised for a comeback in 2025, according to portfolio manager Jay Hatfield. The economic recovery and interest rate environment, along with sector-specific trends and changes in investor sentiment, could drive a resurgence in value stocks next year.

The economic recovery and interest rate environment will play a significant role in the performance of value stocks in 2025. As the economy strengthens, value stocks, which are more sensitive to economic cycles, are expected to benefit. Additionally, a lower interest rate environment makes bonds less attractive, potentially driving investors towards value stocks, which typically offer higher dividend yields.



Sector-specific trends, such as those in energy and financials, could also contribute to the resurgence of value stocks. The energy sector, particularly oil and gas, has seen a resurgence in 2024, with the S&P 500 Energy sector up 35% year-to-date (YTD) as of Dec. 14, 2024. This is due to increased demand and geopolitical tensions, which have pushed oil prices higher. As a result, energy stocks, which have historically been value-oriented, are expected to continue performing well in 2025. In the financial sector, bank stocks have also been strong, with the KBW Bank Index up 25% YTD as of Dec. 14, 2024. This is due to better-than-expected earnings and a more favorable regulatory environment. As the economy continues to grow and interest rates remain low, financial stocks are expected to continue performing well, further boosting the value stock resurgence.

The rotation from growth to value stocks is expected to be influenced by changes in investor sentiment and market dynamics in 2025. As the economy slows and earnings growth for growth stocks begins to slow, investors may seek refuge in more attractively valued value stocks. Additionally, a potential pickup in economic growth and inflation could lead to higher interest rates, which would favor value stocks over growth stocks. Furthermore, the rotation could be driven by a desire for more stable and predictable cash flows, as value stocks tend to have more mature business models and lower volatility.



Specific sectors or industries within value stocks expected to lead the comeback in 2025 include small-cap and value-oriented areas that are expected to benefit from lighter regulations and reduced taxation under the incoming Trump administration. These segments tend to be domestically oriented and are the most leveraged to stateside benefits, as they pay almost all of their taxes in the US and are burdened mostly by US regulations. As a result, the Russell 2000 and Dow Jones Industrial benchmarks are expected to perform well in the next few months.



In conclusion, value stocks may be poised for a comeback in 2025, driven by a combination of economic factors, sector-specific trends, and changes in investor sentiment. While the future remains uncertain, the potential for a resurgence in value stocks offers an attractive opportunity for investors looking to diversify their portfolios and capitalize on market trends. As always, it is essential to conduct thorough research and consult with a financial advisor before making any investment decisions.