US Weekly Kickstart: The Quiet Recent Outperformance of Value Should Continue
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Goldman Sachs asserts that the value factor's quiet outperformance should persist into 2026, propelled by widening valuation spreads, accelerating economic growth, and accommodative monetary policy. Following a 15% return in the second half of 2025, the Russell 1000 Value Index continues to outpace its growth counterpart. Goldman Sachs economists forecast US real GDP growth to accelerate above 3% in the first half of 2026. Historically, value factor returns average 14% during periods of accelerating growth, double the returns seen during stable or decelerating phases.
Currently, valuation spreads remain elevated. The industry-neutral value factor's premium on high-valuation forward P/E sits at 182%, significantly higher than the 45-year median of 97%, though below the extreme peaks of 2000 and 2021. Hedge funds remain underweight value by 10 percentage points, providing room for positioning shifts.
However, Goldman notes that the duration and magnitude of this value rally may be constrained. GDP growth is expected to moderate in the second half, and the differential impact of AI investments on profitability will likely sustain valuation dispersion. Twenty percent of the expensive short basket components overlap with the Goldman Sachs AI basket. To identify opportunities, Goldman screened 41 Russell 1000 stocks demonstrating recent price momentum, below-average valuations, and above-average earnings growth and ROE, featuring a median forward P/E of 12x.