Constant headlines have kept market volatility elevated in recent weeks—from geopolitics in the Middle East to tariff policy uncertainty and artificial intelligence (AI) disruption concerns. This volatility has been further exacerbated by a concentration in Growth names. Although the current environment is laden with risks and uncertainty, Value stocks, which typically exhibit high dividend yields with lower valuations, appear set to turn the tides in 2026.

A rotation in market dynamics

First, it is important to note the dynamics of the rotations underway in the equity market:

• The biggest are no longer the best. In 2023, all seven “Magnificent 7” stocks easily beat the S&P 500; in 2024, six did. Then, last year just two did, and the magnitude of outperformance shrank considerably. Despite stellar earnings growth, AI anxieties are punishing upside AI capex surprises more than upside revenue results are being rewarded. It should be noted, however, that certain “Magnificent 7” stocks bear a significant weight in Value indices, making them eligible for value investors if they meet the right criteria.
• Last year, low-quality stocks rallied after tariff uncertainty stabilized. That meant quality stocks suffered the worst calendar year underperformance vs. the MSCI World since 2003. Yet, this year quality has had a strong start, creating a better environment for stock pickers that are focused on profitability, strong balance sheets and favorable relative valuations.
• While Value has lagged Growth in recent years, Value has shined in periods of heightened volatility and uncertainty in global equity markets. Value is outperforming Growth by nearly 11%-pts year-to-date (Exhibit 1). When volatility picks up, Value protects, particularly given its lower relative valuations and emphasis on quality.

An upshift in macro trends

Still, just because tech is doing poorly doesn’t explain why Value is doing so well. Underneath a flat market lies a bifurcation within sectors, with tech and other Growth sectors are down but most of the Value-orientated sectors are up year-to-date. These traditional Value sectors, such as energy, utilities, industrials and financials, could benefit from a confluence of supportive macro trends. This rotation is underpinned by several factors:

• Both fiscal and monetary policies are turning favorable, with modest rate cuts and fiscal easing from elevated tax refunds likely to keep a strong economic momentum and support cyclical sectors. Corporate tax changes from the One, Big, Beautiful Bill Act (OBBBA), which postpone certain tax liabilities, may also incentivize capex, coinciding with the AI capex boom. In addition, a more pro-business climate coupled with lower rates has spurred capital markets activity, benefiting financials, which facilitate this activity, as evidenced by last year’s record M&A deal activity in North America and a robust Initial Public Offering (IPO) pipeline for 2026-2027.
• Sentiment may have soured on AI innovators and AI-vulnerable industries, but AI demand does not appear to be slowing. Therefore, AI infrastructure and the beneficiaries of massive AI capex have led the market this year in sectors like industrials and materials. This isn’t a rotation out of AI, but rather into different parts of AI.

A broader horizon for Value

Looking beyond the U.S. equity market, the case for Value stocks are even more pronounced. Prior years of Value stocks underperformance created a setup for a catch-up trade, as investors sought to rebalance portfolios away from crowded Growth positions. Value style thereby benefited from this rebalancing, especially as bond yields rose and economic activity momentum improved in Europe, further supported by a rerating in multiples from undemanding levels of initial relative valuations. This led MSCI World ex-USA Value to have outperformed its Growth counterpart by 21% in 2025, with the rally extending into 2026 at 8% year-to-date (Exhibit 2). 

Ongoing tensions in the Middle East have benefitted select Value sectors. Energy companies may see stronger earnings ahead as oil prices remain elevated on supply constraints in the near term. Increased concerns over global security could also accelerate government defense spending and support industrial names. More broadly, Value’s higher dividend yield have also provided an income cushion against price volatility.

Also, the extension of this rotation into Value may have further room to run. Global government spending on defense should see a meaningful step-up as North Atlantic Treaty Organization (NATO) targets an additional 1.5% GDP to be added over the next decade. Ongoing capital expenditure on power generation and AI infrastructure could also provide direct demand and revenue for Value sectors such as industrials, energy and utilities. All the while relative valuations, albeit no longer at extreme levels, remain attractive at below long-term average (40% discounts on forward multiples).

Investment implications

A confluence of factors—from the broadening of AI capex into industrials and nationalism driving increased defense spending, to supportive fiscal and monetary policies fueling economic activity and capital markets—should help sustain the ongoing rotation into Value stocks across developed markets. Value's lower relative valuations and inherent dividend defensiveness against market volatility make it an ideal element for portfolios in the current environment. However, continued uncertainty requires an active approach to investing in the equity market, with careful attention to quality, balance sheet strength and sector-specific catalysts.

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