Value stocks surge 20% in 2026 as Russell reconstitution reshuffles tech giants

The Russell 1000 Value Index has gained 20% this year, outperforming the Russell 1000 Growth Index by more than 21 percentage points — a gap powered by an unlikely source: big technology stocks.

"It was like the index got so lucky," said Sam Peters, portfolio manager on the value strategy at ClearBridge Investments. "It caught that blow-off top in momentum, and then sold it right before they rolled over."

The divergence stems from the Russell Indexes' annual reconstitution in June, which shifted Amazon.com Inc., Apple Inc. and Microsoft Corp. partially or further into the Russell 1000 Value Index while migrating chip makers including Micron Technology Inc., Advanced Micro Devices Inc. and Western Digital Corp. into the growth benchmark. The rebalance occurred just as semiconductor stocks were peaking and megacap tech was touching recent lows. On Tuesday, the Dow Jones Industrial Average rose 1%, or 537 points, while the S&P 500 added 0.2%. The tech-heavy Nasdaq Composite fell 0.2%. Consumer staples and health care each gained more than 2%.

The structural shift has created a paradox: the Russell 1000 Value Index now resembles a "poor man's growth index," driven more by earnings expansion than cheap asset multiples, Peters said. Yet value stocks remain cheap relative to growth — the growth index trades at 26 times forward earnings versus 18 times for value — suggesting room for the rotation to continue. Apple briefly hit $5 trillion in market capitalization on Tuesday, surpassing Nvidia Corp. as the most valuable company.

The broadening of the rally beyond megacap tech has also lifted small-cap value stocks. The Russell 2000 Value Index is up 23% year-to-date, outpacing the Russell 2000 Growth Index's 15% gain.

"The broadening of the market has led to value outperformance, but the broadening of the market has also been because earnings growth has broadened out as well," said Francis Gannon, co-chief investment officer at Royce Investment Partners.

AI Infrastructure Creates Value Plays in Traditional Sectors

For traditional value investors, the tech invasion of the value index complicates stock selection. Krishna Chintalapalli, portfolio manager at Parnassus Investments, argues that value investing must evolve beyond cheapness to focus on corporate quality, especially as artificial intelligence permeates sectors like financials and utilities.

Chintalapalli views Amazon and Microsoft as value plays because both companies boast durable economic moats and strong earnings power while trading at reasonable discounts to their historical norms. He has also found AI-linked value opportunities in the "picks-and-shovels" layer of the infrastructure build-out, including Cummins Inc., a diesel-engine manufacturer supplying backup generators to data centers, and Brookfield Renewable, a renewable power platform contracting with hyperscalers like Microsoft and Alphabet Inc.

"This was hugely consequential and very different from what has happened in previous rebalances because we got Apple, Microsoft, Amazon," said Mary Jane Matts, director of large-cap equities at CS McKee. "They all came in at huge weights, and where they are in terms of the market capitalization, they are now dominating this value benchmark."

Value investors argue that this year's resurgence is not a fluke but the start of a sustained long-term run. Even with recent gains, the forward P/E discount of value to growth — 18 times versus 26 times — remains wide by historical standards. The question for portfolio managers is whether the old guard of deep value can coexist with the new reality of tech-dominated benchmarks.

This article is for informational purposes only and does not constitute investment advice.