This recovery faltered however as Trump’s policy initiatives – including healthcare reform – stalled and little progress was apparent in areas such as infrastructure.
Value stocks tend to outperform when an expansion is broad-based and relatively robust – generally at the start of an economic cycle – and there are signs we may be coming out of the sluggish growth of recent years.
We are currently in a rare period of synchronised global growth, with two thirds of the countries tracked by the Organisation for Economic Co-operation and Development (OECD) accelerating from 2016.
Something else to bear in mind is that the high-flying FANG stocks have posted earnings that do not necessarily match their expensive valuations and at some point, investors will want to see a closer relationship between the two.
Whispers of another tech bubble remain muted for now but in an environment where earnings matter more than future prospects, value names come to the fore.
A final driver for value is the downside protection these fundamentally cheap stocks can offer after a decade out of favour.
While no one is ever keen for a downturn, we have long been surprised not to see the kind of 5% to 10% correction that has traditionally been a function of healthy markets.
We are not expecting a prolonged bear period, which is typically preceded by economic recession, but if there a correction, growth stocks would bear the brunt of any selloffs.
John Husselbee is head of multi-asset for Liontrust
