Remember when everyone was convinced 2025 would be the year of value stocks? Yeah, about that…
Turns out growth stocks had other plans. After getting absolutely hammered in the first half of 2025 (thanks, tariff tantrums), they came roaring back like a caffeinated tech bro with a new startup idea. The result? Growth stocks basically dunked on value investors for the second half of the year.
Here’s the scoreboard that’ll make value investors cry into their dividend checks:
- S&P 500 Growth: 19.9% (flexing hard)
- S&P 500 Value: 12.3% (respectable, but not winning any trophies)
- Russell 1000 Growth: 16.3%
- Russell 1000 Value: 15.1%
The gap was especially brutal in large-cap land, where growth stocks basically lapped value stocks on the track. Small and mid-cap? The race was closer, but growth still edged out value like that friend who always wins board games by one point.
So What Happened? A Tale of Two Halves
Early 2025 looked like value’s moment to shine. Investors were spooked by sky-high valuations after two years of growth stock mania. “Maybe we should buy some boring, profitable companies for once,” they thought. Smart money rotated into value plays, smaller companies, and anything that didn’t have “AI” in its business plan.
Then April happened. Markets face-planted on tariff news, and suddenly those expensive growth stocks looked like Black Friday deals. Investors did what they always do: bought the dip. The Nasdaq surged 20% for the year, proving once again that betting against American innovation is like betting against pizza being delicious.
2026: Déjà Vu All Over Again?
Here’s where it gets interesting (and slightly terrifying). We’re basically back where we started. The S&P 500’s P/E ratio is sitting pretty at 29 – not quite 2021’s bubble territory of 41, but definitely in “this makes me nervous” range.
The real scary number? The CAPE ratio (that’s the fancy 10-year adjusted P/E) just hit 40. That’s higher than 2021’s peak and only topped once in recent history – during the dot-com boom when everyone thought pets.com was the future. Spoiler alert: it wasn’t.
Wall Street’s 2026 predictions are all over the map:
- Optimists: S&P 500 hits 8,100 (17% gain – because why not dream big?)
- Pessimists: 7,100 (2% gain – basically inflation protection)
- Most analysts: Somewhere in the middle (shocking, we know)
The AI Plot Twist
Here’s where it gets spicy. JP Morgan thinks the AI supercycle is just getting started, which could keep the growth party going. But Vanguard – those sensible folks in cardigans – think AI benefits might finally trickle down to value stocks this time around.
Vanguard’s Joe Davis basically said, “Hold up, these tech valuations are getting silly again.” He’s betting on creative destruction (fancy talk for “new companies will eat the old ones’ lunch”) and expects more volatility ahead.
The Bottom Line
Predicting whether growth or value will win in 2026 is like predicting which Netflix show will get canceled next – you might get lucky, but you’re probably just guessing.
The smart play? Don’t get caught up in the growth vs. value cage match. Focus on individual companies with reasonable valuations and solid fundamentals. If a stock’s P/E ratio looks like a phone number, maybe dig deeper before hitting “buy.”
Because at the end of the day, both growth and value investors learned the same lesson in 2025: the market doesn’t care about your strategy – it cares about making you look silly at exactly the wrong moment.