Market Regime Shift: A New Era for Investors
BofA Global Research signals a confirmed “Recovery” phase, suggesting a strategic pivot from Growth to Value stocks.
The Signal: From Volatility to Confirmed Recovery
Since early 2022, the market has been unstable, fluctuating between “Downturn” and “Recovery” phases. Now, BofA’s US Regime Indicator has signaled “Recovery” for two consecutive months, confirming a significant shift.
Previous State (Since Feb 2022)
Downturn ↔ Recovery
Volatile Flip-Flop
Current Confirmed Signal
Recovery
Stable Phase Confirmed
What’s Driving the Recovery?
The confirmed “Recovery” signal is underpinned by broad-based improvement across key economic indicators. This chart highlights the primary factors showing positive momentum.
Indicator Scorecard
A significant majority of the economic inputs tracked by BofA improved in August, providing a strong foundation for the “Recovery” classification.
The Strategic Play: Value Over Growth
The most critical takeaway from this regime shift is the expected outperformance of Value stocks. As the economy strengthens, companies with solid fundamentals and lower valuations become more attractive than those priced for future growth.
▲ Value Stocks
These are established companies trading at a lower price compared to their fundamentals, such as earnings and sales. In a recovery, their stable cash flows and proven business models are highly prized.
- ✓ Favored in Economic Expansion
- ✓ Lower Volatility
- ✓ Often Pay Dividends
▼ Growth Stocks
These are companies expected to grow at an above-average rate compared to other stocks. Their valuation is often based on long-term potential rather than current earnings. They may underperform as broad market strength reduces reliance on a few high-flyers.