"Little Deng" injured, "Old Deng" takes the stage—a rotation signal between "growth and value" in the US stock market?

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The U.S. stock market is undergoing a clear shift in market style. As the "Newcomers"—tech stocks that have long led the market—begin to show fatigue, traditional blue-chip stocks—the "Old Guards"—are stepping up to hit new highs.

On Tuesday, market divergence became the most prominent feature. The Dow Jones Industrial Average, representing the traditional economy, surged strongly, recording its 16th closing record high this year, while the tech-heavy Nasdaq Composite Index fell against the trend. Specifically, the Dow closed up 559.33 points, a gain of nearly 1.2%, at 47,927.96 points; the Nasdaq fell 58.87 points, a drop of 0.3%, to 23,468.30 points.

Behind the ebb and flow of the market is a subtle shift in investor sentiment. The enthusiasm for AI-related trades has begun to cool, and funds are now shifting towards sectors that represent broader areas of the American economy. Boosted by this rotation, the S&P 500 index edged up 0.2%, closing up 14.18 points, with healthcare, energy, and consumer staples as the main drivers. The Dow's rise was led primarily by components such as pharmaceutical giant Merck, biotech company Amgen, and sportswear leader Nike.

"Investors are basically rotating from growth stocks to value stocks," Sam Stovall, Chief Investment Strategist at CFRA Research, said in a phone interview. "This is mainly due to concerns over the valuation of growth stocks, as well as a recognition of the attractiveness of previously overlooked value stocks." He added that this rotation from "pure growth stocks" to "pure value stocks" has been ongoing since August and is now accelerating.

Rotation Logic: From Valuation Worries to Value Discovery

The shift in market style is not accidental; its core driver lies in valuation differences. Sam Stovall analyzed that the reason for the divergence between the Dow and the Nasdaq and S&P 500 Index comes down to the Dow having much less exposure to tech stocks than the other two. He observed that within the S&P 500, investors are conducting a clear style rotation.

Stovall defines the 100 stocks at either extreme of the S&P 500’s growth (XX:SP500PG) and value (XX:SP500PV) categories as "pure growth stocks" and "pure value stocks." He stated that the performance of these stocks shows a very clear rotation trend. This means investors still want to stay in the stock market but are searching for new targets, like "jumping from one lotus leaf to another."

He explained that previously, the market was primarily driven by communication services, consumer discretionary, industrials, and technology sectors, whose valuations had shown a "very steep premium" relative to their long-term averages.

Macro Background: Weak Data Strengthens Rate-Cut Expectations

Weak macro data not only failed to suppress the market, but instead provided more imagination for the Fed’s easing path, creating a favorable macro environment for the value stock rotation.

According to payroll processor ADP Inc., in the four weeks ending October 25, the U.S. private sector reduced an average of 11,250 jobs per week.

Ross Mayfield, investment strategist at Baird Private Wealth Management, believes that despite the weak private labor market data, this is in some respect "what the market needs to happen," as it allows the Fed to continue on the path of monetary easing. He stated:

"As long as the data does not point towards recession, the market will not be troubled by weak labor market data, as it will become a catalyst for more aggressive rate cuts by the Fed."

Short-Term Disruption: Government Shutdown Turmoil Subsides

With the removal of a short-term political risk, the market’s focus has returned to economic fundamentals and monetary policy expectations.

Another variable in the market this week is the U.S. government shutdown issue. According to reports, the Senate approved a funding bill Monday night that is expected to end the longest government shutdown in U.S. history within a few days. The bill has now been sent to the House of Representatives for final vote.

On this, Ross Mayfield pointed out that since most of October, "the market has already priced in expectations that the government shutdown will end and will not leave lasting economic impact." As this short-term uncertainty recedes, investors will pay more attention to company valuations, profitability, and Fed policy direction—which is exactly the key to the current 'growth–value' style rotation.

Risk Warning and DisclaimerThe market involves risks; investment requires caution. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial situations, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular circumstances. Any investments made based on this article are at your own risk. ```