2024 has started like 2023 ended, with Technology shares leading and other sectors lagging. European banks, for example, are down 2% for the year to date. www.sectorspdrs.com/sectortracker qontigo.com/index/SX7R/
I think this is unlikely to continue. Like eToro Market Strategist Ben Laidler, I believe 2024 will be a year when Value stocks make a comeback, as the economy stays strong and interest rates remain stable or go up.
Whether Growth or Value stocks outperform is closely tied to the question of which geography outperforms – US or the rest of the world.
Value stocks tends to outperform Growth when non-US stocks outperform. This is logical because non-US stock indices contain more Value stocks.
Conversely, the US stock index $SPX500 contains lots of Growth stocks, so it tends to outperform the rest of the world when Growth outperforms.
So what can we say about the prospects of the US vs the rest of the world over the coming years?
Investment bank Goldman Sachs argues that the US has the best financial markets in the world, favourable demographics, and extensive human and natural resources. It may be more expensive than other countries, but for good reasons.
By contrast, asset manager AQR argues that US stocks will probably not be able to repeat the performance of the recent past.
As a value investor, I’m naturally more inclined to support the AQR position, but I also see merit in Goldman Sachs’s case. The valuation difference of US vs non-US stocks is not as big as it at first appears, after adjusting for different sector compositions of US and non-US indices, the resiliency and diversification of the US economy, and the high shareholder friendliness of US corporations.
Nevertheless, in the banking sector specifically, the valuation differential between US and non-US stocks is so significant that in this particular sector, I believe there are good reasons to prefer non-US banks over US ones.