Last week, the Federal Reserve raised interest rates by a quarter of a percentage point, bringing the rates between 0.25% and 0.5%. With more rate increases expected in 2022, investor sentiment remains mixed. However, the stock market delivered its best weekly performance since November 2020. Because concerns related to the interest rate increases have already been factored into stock prices, value stocks are expected to rebound to their fair values soon.
Investors generally favor value stocks over growth stocks in an inflationary environment. According to AQR’s co-founder Cliff Asness, value stocks are more than just an interest-rate bet. So, given the current inflationary environment, it could be wise to bet on stocks that are trading at discounts but possess fundamental strength. Investors’ interest in this space is evidenced by the Vanguard Value Index Fund ETF Shares’ (VTV) 2.3% returns over the past three months versus the SPDR S&P 500 ETF Trust’s (SPY) 3.3% decline.
