As the World Cup is underway in Qatar, current geopolitical strife remains prevalent around the world. How do current global crises compare to those in previous years—and what impact does this heightened volatility have on U.S. equity markets? Plus, read more to learn why value stocks have steadily outperformed growth stocks in 2022—and discover whether our Research team expects this trend to continue.

Tuesday’s World Cup match—in which the U.S. defeated Iran 1-0 to move on to the round of 16—served as a reminder of the 1998 match between the nations that many considered to be the most politically charged game in World Cup history. The 1998 game came after two decades of rising tensions between the nations, and just a month after the U.S. labelled Iran as a state sponsor of terrorism. This year’s match, similarly, was preceded by rising political tensions. The U.S. and international community have taken the side of Iranian protestors opposing the current regime’s social and economic policies.

These protests add to what feels like a growing list of global crises – the war in Ukraine, Europe’s energy crunch, unrest in China; among others. While today’s geopolitical environment feels especially charged, recalling 1998 reminds us that geopolitical risks are a near-constant threat to the markets. Yet throughout history, the U.S. equity markets have grown steadily in the face of these many crises.

Since the start of this century, the Russell 3000 Index has returned an extraordinary 350%. The rest of the world as measured by the MSCI World ex USA Index has returned 156% over the same time frame. The world has been and will remain a volatile place, and markets will follow to a certain extent, but over time the U.S. capital markets have rewarded investor’s patience significantly more than other markets around the world.

And don’t forget: on Saturday, the U.S. will face off against the Netherlands, looking to advance to the final eight in the World Cup for the just the third time ever!

2022 has been anything but a normal year in the markets. One indication is the significant outperformance of value stocks versus growth stocks. “Value stocks” are more mature companies with less revenue growth potential, typically trading at cheaper valuations relative to the overall market. Stocks that exhibit higher revenue growth and have greater long-term opportunities are aptly coined “growth stocks.” These companies trade at more expensive valuations relative to their current financial profile due to the market’s expectation for outsized top line revenue growth.

Over the past 20 years, growth stocks have significantly outperformed value stocks. The Russell 1000 Growth Index has returned 679%, while the Russell 1000 Value Index has returned 441%.  However, there has been a sharp reversal of this secular trend in 2022. The Russell 1000 Value Index has outperformed the Russell 1000 Growth Index by 19.6%! This is the greatest margin of outperformance in the last 20 years and has only been eclipsed once in the last 40 years – the bursting of the tech bubble in 2000.

As technological innovation continues to propel new industries, increasing economic efficiencies, and creating new markets, we expect growth stocks to show similar outperformance over the next 20 years. With value’s significant outperformance in 2022, we believe this favorably sets up for a rotation back to growth stocks in 2023 and beyond.

We wish you all a happy and healthy holiday season.

Best Regards,
The Sandhill Research Team

Disclosure: This has been prepared for informational purposes only and does not constitute, either explicitly or implicitly, any provision of services or products by Sandhill Investment Management. Sandhill Investment Management (“Sandhill”) is a registered investment advisor with the Securities and Exchange Commission that is not affiliated with any parent company. Third-party information in this report has been obtained from sources believed to be accurate; however, Sandhill makes no guarantee as to the accuracy or completeness of the information. All statements made regarding companies, securities or other financial information contained in the content are strictly the beliefs and opinions of Sandhill and are not endorsements of any company or security or recommendations to buy or sell any security. The Russell 3000 Index is a market cap-weighted index of 3000 of the largest U.S. common stocks which represents 96% of the US equity market. The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. The Russell 1000 Value Index measures the performance of the large-cap value segment of the U.S. equity universe. The MSCI World ex USA Index captures large and mid-cap representation across 22 of 23 Developed Markets (DM) countries*– excluding the United States. Investments have the potential for profit or loss. Referenced benchmarks are not available for direct investment.