Value vs Growth Stocks: Which Held Up Better in Every Crash Since 2008?

Over the months the S&P 500 fell from its peak to its bottom in each crash, here is how the two halves of the market moved.

In the 2008 financial crisis, value fell about 61%, growth about 51% and the total market about 57%. In the 2020 COVID crash it went the same way: value about 36%, growth about 32%, the market about 35%. In both, the supposedly safer half fell further.

Value held up better twice. In the late-2018 selloff it fell about 18% against about 22% for growth. And in the 2022 bear market the gap was large: value fell about 16%, growth about 35%, more than twice as much, and the market about 26%. On this record, neither style is the safe one. It depends on the crash.

The pattern makes sense once you look at what drove each fall. The 2008 crisis started in the banks, and banks and insurers are a large part of most value funds. In 2020, the pandemic shut down travel, energy demand and much of the physical economy, again value-heavy areas, while companies that sold software and online services kept growing.

2022 was the opposite kind of crash. Inflation forced interest rates up quickly, and higher rates hit companies whose value rests on profits expected far in the future hardest. That describes growth stocks, which had become expensive after a long run. Cheaper companies with profits today, many of them value stocks, held up far better.

So the useful question is not which style is safer, but which risks you are holding. A value tilt leans into banks, energy and the business cycle. A growth tilt leans into expensive technology and interest-rate risk. Each has a crash it fears most.

Recoveries tell a more one-sided story. After 2008, growth got back to its old price high about 28 months after the bottom, against about 47 for the market and about 56 for value. After 2018 it took growth about 4 months and value about 10; after 2020, about 3 months against 9.

Even after 2022, when growth fell more than twice as far, the two regained their old highs in the same month, January 2024. Growth's rebound was simply much stronger. Part of that is the long run growth stocks have had since 2010, led by a handful of very large technology companies; a different decade could look very different.

The long-run case for value is the value premium: studies of decades of US data found that cheap stocks earned more than expensive ones on average. Like the size premium for small companies, it has been far from steady. Through most of the 2010s growth stocks beat value by a wide margin, and value's strong stretches, such as 2022, have been shorter.

You also already own both if you hold a total-market fund, roughly in equal measure by the usual definitions. A value or growth fund is a tilt on top of that, and the tilt changes which crashes hurt you most rather than whether crashes hurt.

The useful question is not which style is better, but what a tilt would do to your mix. Backtest your portfolio as it is, then with a slice moved to value or to growth, and compare the maximum drawdown, the recovery time and the total return with dividends. Then replay each version through 2008, 2020 and 2022 in the stress test, because each style failed in a different one.

Educational, not advice: whether a style tilt belongs in your portfolio depends on your goals, your horizon and everything else you own.