By Teresa Rivas

If the recent pattern holds and investors continue to turn toward more value-oriented and defensive sectors, at least stocks may look cheaper. Yet it could be a case of getting what you pay for.

Stocks are rebounding on Tuesday, after Monday's selloff, with the S&P 500 inching its way back to the breakeven mark for 2026. Even before tariffs threw a monkey wrench into markets, fears that artificial intelligence would replace numerous companies across industries were pummeling not only tech stocks, but also those in business services, logistics, real estate, and financials.

Some have argued that this is a natural and healthy shift for equities in an aging bull market -- a broadening rally can mean less concentrated risk. Yet regime changes are rarely painless, and that might prove to be the case today.

That's Barry Bannister's concern. Stifel's chief equity strategist writes in a new note Tuesday that some see value rebounding as growth stocks struggle "as a sign of cyclical economic recovery, and it may be. But if this fade for Growth relative to Value accelerates and deepens, the history of 'secular' Value-led markets is one of a sharply declining price-to-earnings ratio over time, weaker S&P 500 returns and ever greater shocks, often lasting for many years."

It's perhaps not surprising that the market's P/E would fall: Even with recent declines, the S&P 500 is still changing hands for more than 22 times forward earnings, not far off its postpandemic highs. Much has been made about how expensive stocks are, but expanding valuations have been a key part of the rally in the past few years -- and a key part of some bulls' thesis on how stocks could keep grinding higher.

However, Bannister warns that if value stocks take over leadership, then a lower P/E could offset much of 2026's earnings per share growth in terms of propelling the S&P 500 higher, as historically these rotations from growth to value come with multiple compression. That would keep the index around the 7000 mark. That's certainly above Monday's close of 6837, but well below most strategists' forecasts for the year, which have tended toward 7500 or 8000, and below Bannister's own 7500 target from mid-December.

At that time he warned that he could see a plausible scenario where the S&P 500 lost ground for the year, and that speculative stocks could be the canary in the coal mine. At this point, riskier assets have taken a beating, though fears have spread far beyond just those areas of the market.

Bannister has long warned that investors shouldn't get too used to the double-digit returns of the past three years. Though that hasn't played out yet, he notes that if value stocks do take over the baton for growth, their historical records show that the S&P 500's valuation and returns could be lower for years to come.

Investors may have been looking forward to a time when stocks didn't seem so overpriced, but be careful what you wish for.

Write to Teresa Rivas at teresa.rivas@barrons.com

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February 24, 2026 13:02 ET (18:02 GMT)

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