While the founding members of the newly-minted Contrarian Commiseration Committee (CCC) would be the likes of Ben Graham, David Dodd and recently-retired Warren Buffett, we are the modern-day compatriots, suffering one of the longest value droughts in recent history. While fictious in name, the reality is that value investors have faced down an egregiously long growth cycle.
So, what has brought on our spurt in levity after 10+ years of “value” pain?
We believe we are finally seeing the return of sanity in stock valuations, both in the U.S. and internationally, as investors “value” tangible assets (materials, industrials, energy) over speculative ideas; “value” near-term free cash flows over high valuation multiples on uncertain distant cash flows.
But before looking forward, we must look back at two main reasons for prolonged growth stock dominance…
Low Interest Rates
From the Global Financial Crisis (February 2007) through the pandemic economy (March 2020), central banks globally lowered benchmark interest rates to near or below zero, and kept it there for 13 years. What did that mean for investments? Bond returns after inflation and tax were in many cases negative, so the “low risk” asset class actually lost value for investors. Not surprisingly, investors sought something, anything, with better returns. Growth stocks looked like relative bargains, as near-zero interest rates inflated the present-day value of distant earnings. The reach for capital appreciation extended to momentum fund strategies, crypto, growth stocks, meme stocks, etc. – fundamentals or cash flows be damned.
Concentration
By the end of 2025, the U.S. stock market reached its highest concentration since the 1930s, with the Magnificent 7 representing ~35% of the S&P 500 Index. Looking globally, Nvidia alone represented ~5% of the MSCI World Index, greater than the entire Japanese market cap. Arguably Mag 7 dominance was based on near-monopoly profits in search, digital advertising and cloud. The Mag 7 became the “black holes” of cash flow in the U.S. economy. Index funds bloated with these heavy “weights” attracted trillions.
And yet, extreme concentration has historically preceded mean reversion – just look at the “Nifty Fifty” boom of the early 1970s or the 1990s dot.com bubble. At that time, the Oracle of Omaha was accused of “losing the plot” by not participating in the tech boom… But we all know the bubble burst, and value dominated again for seven consecutive years. What’s not to say we are in the same position now…
It is trite but true that history repeats: typically, we see 10+-year swings when one investment style dominates the other. However, the latest growth cycle has been a very long swing indeed… and we at the CCC want to plant our feet firmly on the ground. We have sharpened our focus on a number of catalysts for a value resurgence in 2025-2026.
The Monetary Backdrop
For nearly two decades – post-GFC through COVID – monetary policy was defined by near-zero or negative interest rates. Pandemic fiscal policy threw gasoline on the fire. U.S. federal spending surged 40% in four years from $4.5 trillion in 2019 to $6.6 trillion in 2020. Direct deposits, PPP loans, and other transfers required no repayment — free money, with the bill deferred to future generations. Consumption exploded beyond what constrained supply chains could meet, driving a spike in savings rates, meme stock mania, and asset bubbles across the board.
Government spending never reverted: $6.8T in 2021, $6.1T in 2022, and $6.4T, $6.8T, $7.0T in 2023–2025. As studies of disaster relief confirm, injected liquidity circulates for a long time. We believe the pandemic liquidity is still sloshing through the system, chasing one momentum trend after another.
The result was inevitable: surging demand against constrained supply produced multi-decade inflation highs. Central banks got what they had wished for — and were forced to raise interest rates aggressively. After decades in which technology, Moore’s Law, and low-cost global manufacturing quietly exported deflation, real rates returned. We think they’re here to stay, and that is good for value investing.
ONE: The Dream of Zero Rates Is Over
Markets still respond to hopes of returning to near-zero rates and the inflated valuations they supported. We believe that era is gone, even if the addiction persists. The math is straightforward: the U.S. government is borrowing to pay interest on existing debt, compounding an already unsustainable trajectory. No organization can sustain 25% of revenues devoted to interest expense indefinitely. Against this backdrop, a meaningful return to sub-2% rates is unlikely. Historically, CPI averaged more than 2.5% annually from 1974–2004 — far above the Fed’s 2% target, which markets have mistakenly treated as a floor. Investors should expect sticky inflation above 2% and higher-for-longer rates. In this environment, capital gravitates toward value: higher dividend yields, strong balance sheets, and cash generation today rather than promises of tomorrow.
TWO: Tariffs, Reshoring, and the End of Deflationary Globalization
The decades-long deflation driven by globalized, low-cost manufacturing is reversing. Tariffs and reshoring are adding costs throughout the supply chain — the same forces that once exported lower prices are now exporting inflation. A return to the deflationary decade looks unlikely, further supporting the case for real rates and value equities.
THREE: Capital Discipline Is Back
When “free” money is off the table, markets grow discriminating. A compelling vision for future profitability is no longer sufficient. Investors are demanding tangible assets, strong balance sheets, and companies generating substantial free cash flow today — and they are starting to find them in value stocks.
Following Trump’s November 2024 election victory, U.S. markets surged to record levels as investors priced in deregulation, corporate tax cuts and Mag 7 gains. International equities languished, and many investors threw in the towel. As with many turns in investment history, that was precisely the wrong moment to quit.
Since January 2025, international markets have outperformed meaningfully. The MSCI World ex-USA Index gained 29.2% in 2025, compared to the S&P 500’s 16.39%. Year-to-date in 2026, the gap has widened further: ex-U.S. up 6.4% versus the S&P 500’s 0.54%. Investors have taken note: global ex-U.S. equity funds including ETFs, attracted $15.4 billion in inflows in January, the highest in 4 ½ years, compared to just $5.7 billion into U.S.-focused equity funds, the lowest in three months.
Why is this important? International markets are inherently more value-oriented, with greater exposure to cyclicals — financials, materials, industrials — and far less concentration in high-multiple technology. Attractive valuations, a weaker dollar, and higher fiscal spending in Europe and select emerging markets create a compelling backdrop.
U.S. equity performance has been slow to tilt value, but early 2026 data is striking: the Russell 1000 Value Index posted a roughly 14% edge over the Russell 1000 Growth Index in the November 2025–February 2026 period. That is a significant performance gap in a short window — and may signal that the value rotation is finally arriving on U.S. shores. All of this to say…
Value may rise again. But don’t just take our word for it, as the long-beleaguered CCC members. There is plenty of historical proof that points to value outperformance. Data covering nearly a century in the U.S. and 50 years in non-U.S. markets supports the notion that value stocks have higher expected returns. From 1927 through 2022, value stocks have historically outperformed growth stocks by an average annual rate of 4.4% (per Dimensional Fund Advisors), on the premise that lower relative prices yield higher long-term returns.
The moral of this story: join the CCC and stick with value stocks. During times of underperformance, value stocks quickly sell off and just as speedily outperform on the upward recovery. While the volatility might be hard to stomach during this extended period of underperformance, maintaining your position is important because the recovery more than makes up for the underperformance. So join the CCC; initiation fee is free per our value bent. It may pay off in the long run…
An excerpt from this blog was printed in the June 16, 2026 issue of Financial Planning.
This blog was published by Bernard R. Horn, Jr., President & Portfolio Manager, in July 2026. Mr. Horn founded Polaris in April 1995 to expand his existing client base dating to the early 1980s. Mr. Horn’s pure global value philosophy combines investment technology with traditional fundamental research. His 40+ year track record exceeds most current competitors in length and has produced admirable risk-adjusted returns since inception.
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