Value stocks to steal centre stage from growth stocks in 2026

Core Viewpoint - Value stocks are expected to outperform growth stocks in 2026 as investors shift focus towards cheaper, less risky assets amid concerns over high valuations in technology and AI sectors [1][2]. Group 1: Market Dynamics - Recent market trends indicate a rotation towards value stocks, with value indices outperforming growth benchmarks in late 2025 [1]. - The breadth of the market rally is expanding, with gains now coming from financials, industrials, and consumer sectors rather than being concentrated in a few large tech firms [3][4]. - The equal-weighted S&P 500 has outperformed its cap-weighted counterpart, highlighting the strength of smaller and mid-sized companies [3]. Group 2: Economic Conditions - Favorable macroeconomic conditions, including potential interest rate cuts by the Fed in early 2026, could lower borrowing costs for banks and consumer-facing businesses, supporting value stocks [5]. - Productivity gains from AI are expected to enhance corporate earnings across various sectors that have not yet benefited from the AI boom [5][6]. - Stronger productivity growth could allow the economy to expand at a real rate of 2.5% without inflation issues, providing a tailwind for value-oriented strategies [6]. Group 3: Investment Strategy - While value stocks are attractively priced, investors need to be selective, as lower valuations do not guarantee outperformance [7]. - Small caps are trading at a significant discount to large caps, but careful stock selection is essential to identify which companies can leverage favorable conditions into stronger profits [8]. - Banks and consumer discretionary firms are highlighted as sectors of interest, but discerning stock selection will be critical as the market rotation progresses [8][9].