Value Stocks and Short-Term Rates

Here’s a small addendum to yesterday’s post on how the stock market behaves. This chart shows the Vanguard Value Index divided by the Vanguard Index 500 fund. That’s the black line and it follows the right scale. The numerical value of the black line is irrelevant, but what’s important is that whenever the black line is moving up, it means that value stocks are outperforming the overall market. When it’s declining, value stocks are lagging.

The red line is the yield on the 90-day Treasury (left scale). Note how the two lines have a decently strong correlation. As I tried to stress in yesterday’s post, these cross-market relationships are far from overwhelming, but something is clearly going on. The correlation is especially strong in the near-term. Rising rates are good for value. Falling rates are not.


I think it’s interesting to note that ever since the Fed brought interest rates to the floor, there doesn’t seem to have been any great trend toward growth or value. I could be wrong, but to my eyes it mostly looks like noise.

I would think that over the very long term, value stocks would outperform the stock market, but there’s no reason to expect short-term rates to rise indefinitely. At least, I hope not.

Posted by on August 28th, 2014 at 9:57 am

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