SAN FRANCISCO -- For five straight years, growth was the only game in town. Then the war started and boring got interesting.

Value stocks — the utilities, the banks, the energy producers, the consumer staples companies — have outperformed growth stocks by more than 11 percentage points year-to-date in 2026, according to StoneX analysis published in February, and that gap has since widened further as the Iran conflict has reshaped the market's risk calculus. It is the largest value-growth spread in years, a rotation that reflects something more durable than a single quarter's defensiveness. [1]

The story is structural. Growth stocks — meaning high-multiple technology companies priced on future earnings — are directly exposed to higher interest rates, which the oil shock has kept elevated; to dollar volatility, which war creates; and to the kind of geopolitical uncertainty that makes five-year earnings projections feel like fiction. Value stocks, by contrast, earn money today. They pay dividends. They sell things people need regardless of whether ceasefire negotiations succeed.

What Drove the Rotation

The shift began before the shooting started. In the first seven weeks of 2026, value led growth in six of them, according to StoneX — a pattern that suggested the rotation was not purely a war trade but a repricing of the AI premium that had built up through 2025. Nvidia, Microsoft, and the other large-cap growth names had priced in continued exponential demand for compute. When demand growth proved more linear than exponential, multiple compression began. [2]

The war accelerated everything. Oil above $100 benefits energy companies directly. Banks, long-duration assets in the value universe, benefit from the elevated rate environment that inflation and geopolitical risk have maintained. Utilities — unfashionable for years — found themselves attractive simply because they generate cash, pay predictable dividends, and are not exposed to the AI capex cycle that has made several technology balance sheets look precarious.

The WSJ reported Saturday that value stocks have outperformed growth by the biggest margin in years. The story noted that the rally is now under threat from Middle East escalation — an observation that, if accurate, creates an interesting paradox: the same war that drove the rotation may eventually be severe enough to break it, if oil prices rise high enough to impair the broader economy and drag everything down together. [3]

The Numbers

The S&P 500's best-performing stocks in 2026 tell the rotation's story directly. Texas Pacific Land Corp., up 75.8% year-to-date, is an energy and land company. Generac Holdings, a generator maker whose product becomes more valuable the less stable the power grid looks, gained 64.8%. The broad S&P 500 finished last week up roughly 3%, its best weekly performance since November — but the gap between value subsectors and growth subsectors within that index remains substantial. [4]

The Russell 2000, a small-cap index with heavy value weighting, was up 5.6% for the year at last reading against the S&P 500's 1.2% gain — a spread that small-cap analysts have noted reflects both the value rotation and a bet that smaller, more domestically oriented companies are less exposed to the trade disruption from the Hormuz closure. [5]

Morgan Stanley's note this week that 50% of Russell 3000 stocks are already down more than 20% from their peaks is the number underneath the rotation story: the rally is narrow. The stocks doing well are doing well. The rest of the market is in correction or bear territory.

How Long It Lasts

Rotations end. The question is what ends this one. If the ceasefire talks currently animating futures markets produce an actual agreement — Hormuz reopens, oil falls — the math changes. Energy stocks give back some of their gains, rate pressure eases, and growth stocks' future-earnings story becomes credible again. The rotation reverses.

But every previous ceasefire signal since the war began has resolved the same way: the diplomatic headline arrived, moved markets, and then the war continued. The value trade has survived three of those false dawns already. At some point, boring wins not because the future is uncertain but because the future keeps looking a lot like the present. Cash today, it turns out, is worth more than cash tomorrow when tomorrow keeps getting pushed back.

-- THEO KAPLAN, San Francisco