The relative performance of value stocks in absolute market declines is inconsistent. It depends on the nature of the decline. Sometimes value stocks deliver strong absolute and relative returns while expensive stocks do poorly. In other times. That was the case when the tech bubble burst. At other times, value does worse than the market. That was the case in the recent financial crisis. In each case, it depends on the nature of the controversy that is creating value and how it is expressed.

Today, cheap stocks are cheap because there is deep uncertainty about the strength of global economic growth. Over the long term, that controversy should be resolved as a clearer picture of what growth rate to expect emerges. Note that I am not saying that a return to strong or normal levels of growth is required–just clarity about the pace and trajectory of economic growth.

If uncertainty rises rather than dissipates in the near term, we are likely to see value underperform. I do not believe that continuously rising uncertainty is likely long term.