Value Investing For US Equities Continues To Rebound

Perhaps, although the latest economic profile for the US looks solid, as summarized by the strong acceleration of growth in the second quarter.Employment growth in July was softer than expected, but as I pointed out in last week’s update: the annual trend in private-sector job creation remained moderately strong and healthy last month.

The potential for macro blowback from the simmering trade war between the US and China is a risk factor. Ditto for the recent weakness in US housing data.

But the big-picture trend for the US economy remains upbeat – a profile that was reaffirmed in the August 5 edition of the US Business Cycle Risk Report.

It’s still early for making confident estimates for third-quarter GDP activity, but the preliminary guesses are encouraging, for whatever that’s worth. In particular, the Atlanta Fed’s August 3 GDPNow model projects a 4.4% increase in Q3 output – slightly higher than Q2’s strong 4.1% gain. The equivalent nowcast via the New York Fed is substantially softer at 2.6%, but the average of the two – a roughly 3.4% rise – is still a solid advance and more than enough to keep the US economy humming.

To the extent that value’s rebound requires the fuel of a positive macro trend, it’s too early to say the jig is up. But with the US expansion currently logging in as the second longest on record, (based on NBER data that begins the 1850s), some analysts say that the macro clock is ticking. Maybe, but if we’re using published economic data the outlook is still bright for value.

Regardless of your near-term view of the economy, there’s a good case for arguing that value investing should only be considered as a long-term strategy rather a tactical play.

“If you believe in the long-term value premium, you can make a case this is actually the time to be increasing value exposure,” says Alec Lucas, senior analyst at Morningstar Research Services. “You can see extended underperformance for another two years, but [you’ll] have a good chance of doing well over the next five to seven years.”

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