Value Stocks Beat Growth by 28% to 0.8% as Higher Rates Shift Focus to Cash Flow
Updated
Updated · LPL Financial · Aug 31
Value Stocks Beat Growth by 28% to 0.8% as Higher Rates Shift Focus to Cash Flow
3 articles · Updated · LPL Financial · Aug 31
Summary
Since Oct. 31, 2025, the Russell 1000 Value Index returned 28% versus 0.8% for Russell 1000 Growth, a reversal LPL says reflects a market regime change rather than a brief rebound trade.
Higher-for-longer rates, sticky inflation and rising AI capex have pushed investors to favor visible free cash flow over long-duration earnings promises, especially in capital-intensive businesses.
Free-cash-flow yield has outperformed other value factors since 2003 in LPL’s analysis, and an FCF-based strategy with a growth overlay has recently beaten both traditional value and growth indexes.
Among Google, Amazon, Microsoft and Meta, average earnings yield is 3.76%—near historical norms—but FCF yield has fallen to 1.57%, 46% below the five-year average, as AI spending pressures cash generation.
LPL still keeps an equity overweight for the rest of 2026, tilting toward quality, industrials and energy while arguing the broader market can rise even as investors scrutinize AI returns more closely.