As U.S. stock prices get hammered on worries that President Donald Trump’s trade and other policies could slow the economy, investors are moving cash to value funds which seem less likely to suffer in downturns than growth stocks.
According to Lipper data, U.S. growth exchange-traded funds (ETFs) experienced outflows of $3.6 billion this month, while U.S. value ETFs recorded inflows of $1.8 billion.
Value funds, which primarily consist of stocks in sectors such as banks, energy and utilities, act as a buffer against market volatility by investing in stable, cash-rich, and undervalued stocks that are less affected by economic fluctuations.
Investors are seeking these attributes as Trump’s intensifying tariff disputes with Canada, Mexico, and China increase global market volatility and heighten inflation and economic growth concerns.
Early this year, growth sectors built on last year’s strong returns amid optimism about the tech industry and artificial intelligence.
However, the Magnificent Seven (Mag 7) and other tech stocks have been at the fore of the recent selloff as investors move away from high-growth names due to concerns over overvaluation and the economy.
Goldman Sachs said the shift from cyclical to defensive stocks in the U.S. market demonstrates that growth rate expectations are falling slightly below their economists’ forecasts, with upcoming data and policy changes likely to guide further such rotations.
According to LSEG Lipper data, U.S. value stocks currently have a forward price-to-earnings ratio of 17.6, representing a 41% discount to growth stocks’ P/E of 30.1. This discount is still greater than the 10-year average of 37.5%.
Leading the inflow into U.S. value funds, the AAM S&P 500 High Dividend Value ETF, Acquirers Small and Micro Deep Value ETF, and American Century Focused Large Cap Value ETF saw significant inflows of $603 million, $513 million, and $388 million, respectively.
Among growth funds, the iShares Russell Top 200 Growth Index Fund, iShares S&P 500 Growth ETF, and Invesco NASDAQ 100 ETF led with outflows of $763 million, $548 million, and $418 million, respectively.
Chris Marangi, co-chief investment officer of value funds at Gabelli Funds, said value stocks are attractive, particularly in small to mid-cap companies which benefit more from deregulation and tax cuts and less from negatives such as tariffs.
“Also, it may no longer be the case that Mag 7 is a safe haven,” he said.
The S&P 500’s 2.7% plunge marked its worst day of the year, as it closed below its 200-day moving average for the first time since 2023. ‘Big Tech’ mega caps were battered, and the tech-heavy Nasdaq clocked a 4% loss for the first time since 2022. The VIX ‘fear index’ of volatility hit its highest point since the yen-inspired explosion last August.
In single stock moves, Tesla’s 15% drop stood out. The auto giant has now lost more than 50% of its value since it peaked in December.
Perhaps as worrying as the moves in equities was the disturbance in the credit market, with borrowing premia on high-yield U.S. corporate bonds rising to the widest level versus U.S. Treasuries since September.
There was no clear fresh trigger behind Monday’s slide apart from ongoing trade tariff uncertainty and the softening jobs market, with President Donald Trump and administration officials acknowledging that an economic downturn was a risk in the first quarter.
The New York Federal Reserve’s latest consumer survey highlighted growing concerns about deteriorating household financial situations. And the percentage of those expecting unemployment to be higher a year from now rose to its highest level since September 2023.
Even though the Fed has made it clear that interest rates are on hold for the foreseeable future, a dash for safety in Treasuries saw two year yields hit their lowest point since October, and traders nudged 2025 Fed easing bets up to 85 basis points.
The dollar also slipped again on Tuesday to another 2025 low.
As major investment banks downgraded previously ‘overweight’ U.S. equity recommendations, anxiety spread around the world. The MSCI’s all-country stock index is now negative for the year, too.
However, stock futures and overseas bourses steadied early on Tuesday with small gains.
Let’s now take deeper look at some potentially game-changing shifts happening in Europe.
The dawn of euro defence bonds?
The European Union’s latest joint borrowing plan is likely just a fraction of what will be needed to defend the continent, causing some to ask whether the dawn of defence bonds will be the next big expansion of EU-wide borrowing.
For global investors seeking to rebalance their investment portfolios beyond an increasingly isolationist United States, development of a liquid AAA-rated supranational sovereign debt pool in Europe is now intriguing.
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