Value outperformance tends to coincide with rising inflation expectations – JP Morgan

According to David Lebovitz, Global Market Strategist at JP Morgan, value stocks tend to do best against a backdrop of accelerating inflation.

Key quotes

“Inflation can be a symptom of an economy that is operating above its potential; therefore, it makes sense that value stocks tend to outperform their growth counterparts when inflation expectations are rising, as higher inflation should in theory coincide with stronger earnings growth.”

“The remainder of 2021 should see an acceleration in economic activity, rising inflation, and higher interest rates. In general, this dynamic should support the outperformance of value relative to growth, with attractive relative valuations acting as an additional tailwind for value outperformance.” 

“Clients are starting to ask whether the ‘reopening trade’ has run its course; this does not seem to be the case, as robust earnings growth and further steepening of the yield curve should allow value to continue to outperform.”