The last few years have been good for growth stocks, but I think there is another observation underneath the surface as well. Growth and value leadership has pivoted on Fed policy the last five years. In the chart below, I plot the relative performance of the S&P 500 Growth Index compared to the S&P 500 Value Index (blue line) vs. the three month change in Federal Reserve assets (red line). The key takeaway here is that value has outperformed growth only when the Fed has been performing QE and expanding its balance sheet. The Fed has indicated it will not contract its balance sheet (passively by not re-investing) until rates begin to rise. But, with rate increases likely beginning later in the year, the point at which the Fed’s balance sheet begins to contract may be near. I say this to explain why the relative performance of Growth vs. Value has broken out recently but also to suggest the pieces seems to be in place for growth to continue to outperform value.