The value style of investing outperformed significantly in 2016, but growth-oriented investment strategies have been doing better so far in 2017. Thus, many investors are wondering whether the value upswing was just a passing fancy, and if growth is here to stay.

We identify and explore the main drivers of the style cycle:

  1. The rotation between growth and value strategies
  2. Valuations
  3. Government policies that are supportive of economic growth
  4. Earnings expectations

Investors can use this simple, transparent framework to identify potential inflection points in the style cycle.

Animal spirits and the ‘soft’ macro data (e.g., business and consumer sentiment surveys) have provided strong tailwinds for U.S. equities. For the rally to continue, we likely need fundamental follow-through in the ‘hard’ macro data (e.g., nominal GDP, sales, and earnings). On that score, we think policy support is a crucial link in the chain of events leading to a durable value regime.

Follow @OppFunds for more news and commentary.