Value stocks haven't been the best place to keep your money in recent years, and the Federal Reserve seems to think it will be able to get inflation under control rather quickly. But in this Fool Live video clip, recorded on Dec. 13, Fool.com contributor Matt Frankel discusses why he thinks inflation might stick around for a while and value stocks could finally have their time to shine in 2022.
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Matt Frankel: No. 1 is that value stocks are finally going to start to outperform growth stocks.
Jason Moser: Oh, man, I would love for you just to go ahead and tweet that out after we get done taping, and just watch all the growth investors just descend on you.
Matt Frankel: It's pretty bold. Over the past decade, growth stocks have doubled the return of value stocks as a whole. Like the Vanguard Growth ETF (VUG 0.01%) versus the Vanguard Value ETF (VTV -0.32%), it's been about double the total return over the past decade. In most individual years, growth has outperformed. I just think that value stocks have generally a lot more to gain, and the market is tiring of these high valuations.
Jason Moser: Well, it feels like we're seeing a little bit of that rotation now when you say it. That, I know it's a buzzword -- rotation out of one sector -- the reality of the matter is, that is what happens. You see this bigger picture interest shifting from one sector of the market to another. There is a rotation out of growth into something else, and it does feel like what you're saying there. Maybe there is some more interest in value.
Matt Frankel: There's a lot that can cause it. For example, when interest rates rise, it makes investors think twice about the high-value growth stocks.
Jason Moser: Right.
Matt Frankel: Things like that. I just think that the growth stocks have had their moment at this point, but I thought that last year. That's the one that I got wrong. I think this year might be finally the time for value.
Jason Moser: Well, we will obviously be paying close attention to that. What about No. 2?
Matt Frankel: The Fed will raise rates quicker than expected but will have a tough time getting inflation under control.
Jason Moser: I like that. I don't like inflation, don't get me wrong, but I like the prediction.
Matt Frankel: We've already seen that the transitory inflation figures. On the day I wrote this article, the Fed announced that they were going to retire the word "transitory" because that was obviously wrong. But right now, even today, the predictions still call for either no rate hikes or one rate hike in 2022, between zero and one. I'm predicting that the Fed will raise interest rates at least twice in 2022, if not three times, and that it's going to find inflation a lot more difficult to control than they think. I think inflation will run over 3% for the foreseeable future.
Jason Moser: Yeah, I tend to agree with you there. I was never really on board with "transitory." I think it's funny that they decided they needed to retire the word from their verbiage in the meetings because I think they've finally realized it's not really the case, but that strikes me as a pretty plausible scenario. What about bold prediction No. 3?
Matt Frankel: I will say before I get to that, people my age and your age, we really haven't had to deal with inflation in our adult lifetimes.
Jason Moser: No, not really.
Matt Frankel: Most of the people making these predictions today, really don't know what to think about it.
Jason Moser: Yeah. Well, it's really interesting in either, just before we get to the next prediction. Inflation is one of those things that we taught, like when we were doing that Fool School stuff at HQ, back when HQ was open. We even had kids come in, fifth, sixth, seventh grade, and we would teach them about inflation. We would just: "Hey, this was the price of a gallon of milk back in 1990, this is what it is today. This is what it was back in bananas, bread." You could see it really does exist and trying to explain to them that over time, if you put that $100 bill into a piggy bank, that's great, you are protecting that wealth. But the longer you leave it there, the more destructive it becomes because inflation really does eat that up.
Matt Frankel: I was born during a very inflationary time in the early 1980s. Through the '90s, it remained elevated, the 4%-5%-a-year range, certain years. But in the 2000s, 2010s, we really have not seen big inflation.