No rest for the weary. It looked like things were finally starting to take a turn for the better for beleaguered Value investors during that window of time that we will call “when COVID-19 started falling off the radar.” Until they didn’t.

Both the six-week plunge that hit stocks of all varieties when COVID-19 first came on in early 2020 and the subsequent rally for the rest of that year were characterized by the outperformance of the S&P 500 Growth Index over its Value counterpart. Populated as it was by “stay-at-home stocks,” the S&P 500 Growth Index posted a gain of 26% from the start of 2020 until Pfizer’s original vaccine announcement, which came on November 9 of that year. Though the S&P 500 Value Index had also rallied furiously from the March 2020 stock market lows, it was still 5% in the red on the year-to-date number by the time Pfizer dropped that news.

But then things turned on a dime. The situation was looking gangbusters for Value for about a half year thereafter, as 2021’s first and second quarters ushered in a continuation of a broad market rally that was characterized by reflation. Nevertheless, 2021’s inflation was starting to feel a bit hyper; Value-oriented sectors such as Energy decided to take over market leadership, stealing that title from the COVID-19 stay-at-home concepts that had thrived in the prior year.

The vibes were good for Value players, or so it seemed. For the first time in what seemed like forever, there was evidence that the market was willing to enter a bull phase and have it be led by Value stocks. It was certainly exciting for WisdomTree; we launched a bunch of dividend strategies in 2006, unfortunately near the end of Value’s 2002–2007 dominance.

The good spirits in Value investors’ minds in 2021’s first half were swiftly dashed; a double-digit YTD performance gap over Growth by summer 2021 evaporated in a matter of weeks. As 2021 closed, Growth reclaimed all of its previous underperformance and then some. Frustratingly for Value, Growth ended up beating it by 7 percentage points that year.

2022 gave Value investors new life in the form of pain mitigation in a tough stock market. The S&P 500 put in an all-time high right after New Year’s, closing at 4,796.56 in the year’s opening sessions. That high still stands. As the market cratered, Growth stocks that had become reliant on quantitative easing (QE) were among the most punished upon the commencement of the Fed’s big, bad, bold rate tightening cycle in March 2022.

With the Fed having plunked more than five points onto the Funds Rate since then, it makes the 2015–2019 rate tightening campaign look positively wimpy by comparison. It also trumps the 2004–2006 tightening cycle, which witnessed Fed Funds jump 425 bps to 5.25% in a series of deliberate 25-bp stairsteps.

Cheap stocks didn’t have much trouble in 2022. The S&P 500 Value Index posted a 5% loss last year, handily outpacing the hammering in both the S&P 500 Index (-18%) and the S&P 500 Growth Index (-29%).

Whether the Fed attempts to keep going, bringing the current 5.25%–5.50% range toward 6%, may be of little consequence given the damage that may have already been done. The cost of money is now higher than it was in August 2006, the date of Bernanke’s last fateful hike. When the stock market peaked thereafter, in October 2007, the stocks that fell hardest were the bull market’s leaders: Financials and Energy. If another bear comes along and takes out this market’s leaders, that could spell trouble for growth stocks.