As of mid-2026, the small-cap value benchmark was up 23% year-to-date, compared with a 15% gain for the growth index, according to the Wall Street Journal. Dow Jones Market Data, cited by MarketWatch, placed the value index on track for its largest first-half outperformance of growth since 2022. MarketWatch / Dow Jones Market Data

The rotation started early. StoneX reported that large-cap value outperformed large-cap growth by a double-digit margin in the opening weeks of 2026, pointing to a real shift in where capital was flowing. StoneX By mid-year, the small-cap leg had caught up and then some, widening the gap across both size and style categories.

"Value" stocks are shares of companies that look cheap relative to their earnings or book value — think established firms in banking, energy, or manufacturing. "Growth" stocks are shares of companies where investors pay up for expected future earnings growth — think technology and biotech. The two styles take turns leading the market, and the swing from one to the other is what analysts call a "rotation."

Several structural arguments help explain the move. Value stocks tend to hold up better in bear markets (periods of sustained price declines), while growth stocks tend to lead in bull markets (periods of sustained price gains). Analysts summarize the pattern: bull markets take the escalator up while bear markets take the elevator down. MarketWatch That pattern matters because sentiment has been sour. MarketWatch reported that market sentiment averaged negative in 2025, with the average bull-versus-bear spread at negative 11.7 for the year. MarketWatch

The broader question for portfolio managers is whether the 2026 value premium reflects a genuine regime change — a lasting shift in which style leads — or simply defensive positioning by investors who expect a downturn. The escalator/elevator framework leans toward the latter interpretation. If value outperformance is mainly a bear-market phenomenon, and sentiment data remain negative, then the gap may be less about growth stocks being permanently impaired and more about where institutional capital parks when it expects losses.

A separate MarketWatch opinion piece argues that many U.S. stocks will look cheap based on historical valuations, but those past bull-market yardsticks will not be useful again for a long time. MarketWatch For growth stocks in particular, if the valuation multiples from the post-2020 era no longer serve as reliable reference points, investors face a valuation vacuum: a stock can look inexpensive against its five-year average and still be expensive against a future environment in which interest rates (the "discount rate" used to value future earnings) stay higher for longer.

The most recent data from the Journal offers the latest read. As of late July 2026, small-cap value held its 23% YTD lead against growth's 15%. WSJ The fact that the gap persisted through July, rather than reversing after first-quarter momentum faded, gives the rotation credibility beyond a quarter-end rebalance or a crowded trade unwinding.

One technical detail worth noting: MarketWatch reported that an index exited a bear market on a Wednesday, was up 21.4%, and that the level needed to confirm a new bull market was 12,255.95. MarketWatch The 20% threshold from a trough is the conventional dividing line between bull and bear markets. An index climbing back that distance while value leads growth by roughly 800 basis points (8 percentage points) at the small-cap level and by a double-digit margin at the large-cap level is consistent with a rotation that favors shorter-duration, earnings-driven stocks over longer-duration growth names.

For portfolio construction, the stakes are concrete. Factor tilts (portfolio positions designed to capture a particular style or characteristic) put in place during the 2020–2024 growth regime are now generating negative tracking error — meaning they are underperforming relative to benchmarks that leaned into value. Portfolio managers who treated growth overweights as a permanent structural position rather than a cyclical bet are looking at a multi-quarter drag that compounds if sentiment does not improve. The negative 11.7 bull-bear spread from 2025, if it carries into 2026, provides the kind of environment in which value has historically continued to lead.

The risk case is a sentiment reversal. If the bear-bull spread normalizes and the index that crossed the 12,255.95 threshold sustains its bull-market status, the escalator dynamic reasserts itself and growth reclaims leadership. The 2026 value trade, on that reading, is a hedged position against a risk-off environment that has not fully resolved — not a permanent structural break.