Tech Sell-Off Triggers Market Reset: Value Stocks Reach 7-Month High Versus Growth

The U.S. stock market suffered the worst start to year in over two decades, with the S&P 500 and the Nasdaq 100 dropping 0.6% and 1.7%, respectively, on Tuesday.

This downturn was primarily instigated by a widespread sell-off in the technology sector, as investors adopted a more cautious stance following a robust market rally in the final two months of 2023.

Interestingly, not all segments of the equity market were equally affected by this early-year turbulence. Value-related stocks managed to weather the storm, avoiding losses and even posting modest gains during the first trading session of the year.

Notably, the iShares Core S&P U.S. Value ETF IUSV closed 0.6% higher on Jan. 2, reaching new all-time highs. On the flip side, the iShares Core S&P U.S. Growth ETF IUSG experienced a stark contrast, with a 1.6% decline on the same day. This performance left it trailing 13% below its previous record high, set in November 2021.

One noteworthy indicator that reflects the divergence between these two equity styles is the value-to-growth ratio, which measures the relative strength of value stocks compared to growth stocks. On the first trading day of the year, this ratio surged by 2.2%, marking its most robust single-day performance since October 2022 and reaching levels last seen in May 2023.

This demonstrates that after the strong tech-led rally in 2023, investors are reevaluating their preferences and potentially shifting towards value stocks as they seek stability and potentially undervalued opportunities in 2024.