RBC Capital's 2026 Forecast: Catalysts for Value vs. Growth Stock Dynamics

This analysis is based on a December 1, 2025 MarketWatch article by RBC Capital’s head of U.S. equity strategy, Lori Calvasina, which forecasts the continuation of competition between value stocks (and the broader market) and Big Tech/growth stocks in 2026. [2]

On the article’s release day, growth and value ETFs saw modest price movements: the Invesco QQQ Trust (QQQ, growth/Big Tech) fell 0.46%, while the iShares S&P 500 Value ETF (IVE, value) declined 0.30%. The muted reaction stems from the report’s long-term forecast nature, rather than immediate market-moving news. [0]

1. Valuation Disparity
   : Growth stocks (QQQ) trade at a P/E ratio of 34.75, 49% higher than value stocks (IVE’s 23.26), indicating a significant valuation premium. If Calvasina’s catalysts materialize, this gap could narrow, favoring value. [0]

2. Interest Rate Environment
   : Forbes projects the Federal Funds rate will fall from 3.75-4% to ~3% by December 2026. [1] While both stock types may benefit from lower rates, value stocks (with near-term cash flows) could attract investors shifting from growth stocks, whose future cash flows are discounted more heavily at higher rates.

3. Sector Rotation Trends
   : On November 30, 2025, value-focused sectors (industrials, consumer cyclicals, financials) outperformed growth sectors (tech, communication services). This early rotation could accelerate if catalysts align. [0]

• Valuation Vulnerability
  : Growth stocks’ extended premium suggests correction potential amid expected rate cuts. [0]
• Fed Policy Link
  : Lower rates may reduce growth stock discount rates but increase demand for value’s immediate cash flow stability. [1]
• Early Rotation Signs
  : Recent sector performance hints at nascent value momentum, which could strengthen in 2026. [0]
• Volatility Differential
  : Value stocks exhibit 37% lower volatility (0.91% vs. 1.43% for growth), appealing to risk-averse investors. [0]

• Growth Momentum Persistence
  : Big Tech/growth stocks have maintained strong 1-year returns (+27.04% vs. value’s +16.74%) [0] and could continue outperforming despite valuations.
• Interest Rate Uncertainty
  : Delayed or smaller-than-expected rate cuts may negate value’s expected benefit.
• Economic Slowdown
  : A recession could disproportionately harm cyclical value stocks.

• Valuation Normalization
  : The P/E gap creates a window for value stocks to catch up if sentiment shifts.
• Stability Demand
  : Value’s lower volatility may attract investors seeking stable returns.
• Sector Rotation Continuation
  : Sustained value sector outperformance could reinforce the shift.

• Fed rate decisions and economic indicators (inflation, GDP growth) in 2026.
• Quarterly earnings comparing growth vs. value stock growth rates.
• Market sentiment surveys tracking investor preferences.

• 1-Year Returns
  : QQQ (growth) +27.04%, IVE (value) +16.74% [0]
• Valuations
  : QQQ P/E 34.75, IVE P/E 23.26 [0]
• Volatility
  : QQQ 1.43%, IVE 0.91% [0]
• Expected Rate Cuts
  : Fed funds rate to ~3% by December 2026 [1]
• Recent Sector Trends
  : November 30, 2025 value sectors outperformed growth [0]