In late July, U.S. equity markets reached levels of growth-stock dominance not seen since the peak of the tech bubble more than 25 years ago. Fueled by investor enthusiasm for all things AI and technology, today’s market has become increasingly top-heavy, with a handful of mega-cap names propelling growth indices to extreme valuations vs value counterparts.

The historical parallel is striking. At similar extremes in 2000, growth stocks suffered a massive correction, while value stocks went on to outperform over the following 5-, 10-, and 15-year periods. While today’s technology leaders are far more established than Pets.com or Broadcast.com, the lesson remains evident: valuations matter, and even the most durable businesses are not immune to the gravitational pull of valuation.

Discipline Amid the Momentum Wave

When certain sectors of the market are surging, it can be tempting to let winners run without making adjustments. Yet history shows that even during periods of exceptional strength, maintaining a disciplined rebalancing process is essential. Rebalancing helps investors lock in gains, avoid overconcentration, and ensure portfolios remain aligned with long-term objectives. While it may feel counterintuitive to step back from areas of strong momentum, this discipline often pays dividends over time, providing balance, and resilience through changing market cycles.

 

Lower Rates Could Favor Value Sectors

With inflation moderating and the Federal Reserve signaling a potential shift toward easing, lower interest rates could provide a more supportive backdrop for value-oriented sectors such as financials, industrials, and consumer staples. While falling discount rates can benefit growth companies, many value stocks are more directly tied to credit-sensitive segments of the economy. Lower borrowing costs can improve balance sheets, stimulate capital investment, and boost consumer spending, all tailwinds for value stocks.

 

Slowing Economy May Pressure Premium Multiples

As the economy shows signs of deceleration, investors may begin to question the sustainability of lofty multiples on high-growth tech names. In such an environment, earnings durability and cash flow stability, hallmarks of many value-oriented businesses, become increasingly attractive. Historically, value stocks have offered a relative safe haven during periods of slower growth, supported by tangible fundamentals and often stronger dividend yields.

 

Positioning for the Next Cycle

Markets rarely move in one direction forever. Just as the dominance of growth stocks in the late 1990s gave way to a decade of value leadership, today’s extreme spread between growth and value suggests that tides may once again be shifting. With the potential for lower rates and a cooling economy, investors may increasingly reward companies with durable earnings, strong balance sheets, and reasonable valuations.

At Cambiar, our Large Cap Value Strategy is designed to capitalize on this backdrop. Rooted in our Quality | Price | Discipline (QPD) process, we focus on quality companies with resilient business models, purchasing them at attractive entry points, and applying a disciplined approach to portfolio construction. This framework aims to generate consistent, value-driven returns while managing downside risk.

If history is any guide, the next cycle could belong to value. The question for investors is: are you positioned to capture it?