In October, the S&P 500’s value stocks beat its growth stocks by 10.4 percentage points, more than in any month of the dot-com bust. After the 10 biggest value months before this one, growth kept lagging four times and caught up five times.
The base rate is thinner than ten observations suggests: seven of the ten months fall inside two episodes (Sept 2000–Mar 2001 and Jan–Oct 2022), so it's closer to five independent observations. Within those episodes the result flips depending on the starting month, which says more about entry timing than direction. Did you test the 12-month outcome by episode rather than by month?
Fair point, and no, we counted by month. Grouped by episode, taking the first month of each, it's two for value, two for growth and one level, so it's still a coin flip. The split does line up with the cause, though: value's wins came in the funding shocks of 2000 and 2022, growth's in the calmer years of 2024 and 2025. Inside both shock episodes, the late entries were the ones that reversed. With only five observations, it's a pattern to watch, not a rule.
That split is more useful than the coin flip: value won the funding shocks, growth the calm years, so the next 12 months is a call on regime, not on the spread. Which bucket do you put this year’s widening in?
Between the two, which is why we called it a coin flip. It has one shock feature: the leaders now fund their build with debt. But their borrowing spreads haven't moved against them yet. Microsoft just sold 40-year bonds at only 1.05 points over Treasuries. If those spreads widen while capex stays high, it moves into the shock bucket.
Then the trigger is supply rather than credit: if the hyperscalers keep issuing at this pace, spreads can widen on volume alone before anyone doubts the borrower. New-issue concessions would show it first.
Your funding signal is the cleanest test in the piece. If the leaders keep borrowing near the Treasury rate, this stays a valuation rotation; if their spreads start widening toward CoreWeave's 15%, it becomes a 2022 funding argument. Friday's tape already showed the split in the open: energy up 13.9% for October while semiconductors fell 14.2%. One question on the base rate: in the five cases where growth caught up within a year, did the leaders still have expanding margins at the time, or were they already borrowing to defend growth? That seems like the line between a rotation that reverses and one that compounds.
Not in all five. In July 2024 and March 2025, margins were expanding and the leaders funded their spending with their own cash. In early 2001 and October 2022, margins were shrinking, but the Nasdaq 100 was already down 35% to 60% from its peak, so expectations were low. In none of the five did the leaders borrow to fund growth, which is what's different now. So yes, that's the line we're watching.
That sharpens the test in a useful way. If none of the five had leaders borrowing to fund growth, then this time really is different in kind, not just in degree. What I'm taking from this is that the line to watch is the funding mix itself: the rotation holds as long as the new AI debt keeps pricing tight, and the first sign it breaks is spreads widening while capex stays elevated. That's the version of your line I'd put a number on.
The base rate is thinner than ten observations suggests: seven of the ten months fall inside two episodes (Sept 2000–Mar 2001 and Jan–Oct 2022), so it's closer to five independent observations. Within those episodes the result flips depending on the starting month, which says more about entry timing than direction. Did you test the 12-month outcome by episode rather than by month?
Fair point, and no, we counted by month. Grouped by episode, taking the first month of each, it's two for value, two for growth and one level, so it's still a coin flip. The split does line up with the cause, though: value's wins came in the funding shocks of 2000 and 2022, growth's in the calmer years of 2024 and 2025. Inside both shock episodes, the late entries were the ones that reversed. With only five observations, it's a pattern to watch, not a rule.
That split is more useful than the coin flip: value won the funding shocks, growth the calm years, so the next 12 months is a call on regime, not on the spread. Which bucket do you put this year’s widening in?
Between the two, which is why we called it a coin flip. It has one shock feature: the leaders now fund their build with debt. But their borrowing spreads haven't moved against them yet. Microsoft just sold 40-year bonds at only 1.05 points over Treasuries. If those spreads widen while capex stays high, it moves into the shock bucket.
Then the trigger is supply rather than credit: if the hyperscalers keep issuing at this pace, spreads can widen on volume alone before anyone doubts the borrower. New-issue concessions would show it first.
Your funding signal is the cleanest test in the piece. If the leaders keep borrowing near the Treasury rate, this stays a valuation rotation; if their spreads start widening toward CoreWeave's 15%, it becomes a 2022 funding argument. Friday's tape already showed the split in the open: energy up 13.9% for October while semiconductors fell 14.2%. One question on the base rate: in the five cases where growth caught up within a year, did the leaders still have expanding margins at the time, or were they already borrowing to defend growth? That seems like the line between a rotation that reverses and one that compounds.
Not in all five. In July 2024 and March 2025, margins were expanding and the leaders funded their spending with their own cash. In early 2001 and October 2022, margins were shrinking, but the Nasdaq 100 was already down 35% to 60% from its peak, so expectations were low. In none of the five did the leaders borrow to fund growth, which is what's different now. So yes, that's the line we're watching.
That sharpens the test in a useful way. If none of the five had leaders borrowing to fund growth, then this time really is different in kind, not just in degree. What I'm taking from this is that the line to watch is the funding mix itself: the rotation holds as long as the new AI debt keeps pricing tight, and the first sign it breaks is spreads widening while capex stays elevated. That's the version of your line I'd put a number on.