Value Stocks Outshine Growth Amidst Rising Treasury Yields: Key Sectors and Stocks Analyzed

In recent weeks, value stocks have outperformed growth counterparts, proving to be a hedge against the market’s downturn.

The Vanguard Value Index Fund ETF VTV has beaten the Vanguard Growth Index Fund ETF VUG by 5% during the past month. The momentum shift comes as investors recalibrate their strategies amidst fluctuating market dynamics.

Growth equities, which are more sensitive to risk aversion and interest rates, have been hit more by the recent rise in U.S. Treasury yields.

The combination of hawkish comments from the Fed, an acceleration of inflation in July, and higher-than-expected Treasury issuances this month has pushed up the costs of U.S. government debt to a level not seen since November 2007. The yield on the 10-year Treasury note is now at 4.34%.

Investors and analysts commonly utilize the 10-year Treasury yield as a gauge to discount the value of future cash flows for stocks. Higher Treasury yields negatively affect the value of those future cash flows, and vice versa, exerting downward pressure on growth stocks.

Read Also: How to Buy Treasury Bonds

Chart: 10-year Treasury Yields Hit November 2007 Peak

Value vs. Growth: Sector Standouts

The Energy Select Sector SPDR Fund XLE took the lead as the highest-performing sector in the previous month, boasting impressive gains of 5.5%. Its influence is prominently felt in the VTV portfolio, comprising over 7%, while in the VUG portfolio, it holds a modest 1.2% weight.

On the flip side, the Technology Select Sector SPDR Fund XLK faced a setback, plummeting by 5% over the past month. It’s joined in this performance dip by the Utilities Select Sector SPDR Fund XLU and the Real Estate Select Sector SPDR Fund XLRE.

Technology stocks cast a significant weight, exceeding 40%, in the Vanguard Growth ETF, but screen a more subdued presence of 9.4% within the Vanguard Value ETF.

Value vs. Growth: Stock Contributors

Now, let’s delve into the stocks driving this trend.

In the realm of the Vanguard Value Index Fund ETF, the most noteworthy positive contribution during the recent month comes from Exxon Mobil Corp. XOM, carrying a substantial 2.5% weight. In the same period, Marathon Oil Corp. MRO and Regeneron Pharmaceuticals, Inc. REGN stand out with the most substantial returns, both up by 13%.

However, the value spectrum witnessed its own share of challenges. Bank of America Corp BAC, Broadcom Inc. AVGO, and JP Morgan Chase & Co. JPM grappled with notable declines, recording 9.7%, 5.8%, and 4.3% drops, respectively.

Turning to the Vanguard Growth Index Fund ETF, the past month’s primary boost came from Eli Lilly & Company LLY, showing an impressive 19% surge. Alphabet Inc. GOOG GOOGL also shone with a 5.9% uptick, though its influence within the portfolio is marked at 6.4%.

On the flip side, Apple Inc. AAPL faced a formidable challenge, bearing the weight of a 13% decrease, followed by Microsoft Corp. MSFT with a 12% weight and a 7.1% drop. Among the growth stocks, ZoomInfo Technologies Inc. ZI took the title of the poorest performer in the past month, down by 35%.

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