Rising inflation has led investors toward taking a look at an area of the stock market that’s been a relative underperformer in recent years: value. The iShares Russell 1000 Value ETF (IWD) has climbed more than 48% over the past five years. Its growth counterpart, the IWF , has nearly doubled in that time, as investors rush to add exposure to artificial intelligence and try to pick out winners and losers in the space. But with near-term growth projections relatively high and prices rising, a “running hot” economic outlook is making cyclical value stocks look more attractive. “A transition to a rising inflation regime would likely support a shift towards value,” strategist Rob Anderson at Ned Davis Research wrote on Thursday, highlighting the energy, health care, materials and consumer staples sectors. “In contrast, growth sectors have generally underperformed when inflation is rising.” The S & P 500 energy sector is up 30% this year. Health care is down 4.5%, consumer staples is up 10%, and materials is up 9.5%. XLE XLV,XLP,XLB YTD mountain Health care, energy, staples, materials year to date Analysts at Stifel are also picking up on the potential transition toward stickier inflation and its implications for value over growth. “Growth led in 2024-25 but we believe this will fade as the economy shifts into an inflationary boom,” strategist Thomas Carroll wrote last week. “In addition to ‘running hot’ cyclicals, we prefer to barbell them with defensive value stocks.” The outperformance of value may have already begun, as rising energy prices have pushed up inflation expectations since the start of the Iran war at the end of February. “Through May 15, value stocks are outperforming growth stocks in 2026 across all market cap segments in 2026,” John Stoltzfus, chief strategist at Oppenheimer Asset Management, wrote last week, arguing it signals “a desire for further diversification and away from over-concentrated positioning.” While value plays are catching the eye of investors, higher prices in the economy are catching the eye of economists. Federal Reserve governor Christopher Waller said Friday that he’s no longer on board with gradually lowering short-term interest rates. Instead, he said he’s now on the fence between cut and raise territory. “Inflation is not headed in the right direction,” he told an audience in Frankfurt, Germany. “Based on this recent data, I would support removing the ‘easing bias’ language in our policy statement to make it clear that a rate cut is no more likely in the future than a rate increase.” Inflation popped to a 3.8% annual increase in April, up from 3.2% in March and 2.4% in February. The personal consumption expenditures price index – the Fed’s preferred inflation gauge – rose to a 3.5% annual increase in March, though the central bank is expecting it to wane back toward 2.7% for this year. Inflation-adjusted gross domestic product grew by 2.1% in 2025 and the Fed is expecting that to increase to 2.4% this year. GDP grew by 2% in the first quarter, and the Atlanta Fed is currently projecting growth above 4% in the second quarter. “I think it’s going to settle in at 4% or 5% for the rest of the year because of all we’re seeing in capital spending and productivity,” National Economic Council director Kevin Hassett said Friday. Ned Davis Research strategist gave a breakdown of the best and worst performing equity sectors during periods of rising inflation. Relative returns were 12.5% in energy, 4.3% in consumer staples and 4% in health care, according to their analysis. Financials were -11.3%, consumer discretionary was -6.4% and tech was -3%. Despite the prediction, inflation at the macroeconomic level will be hard-pressed to derail the ascendent tech sector, which is currently undergoing a huge acyclical boom due to AI and the massive amounts of capital that are pouring in to fund it. Gains in the S & P since the middle of April, which is up about 5% over the past month, have occurred as the advance-decline ratio has sharply contracted. “[This is] indicating that leadership has become more concentrated, namely in technology (semiconductors and AI infrastructure stocks),” Craig Johnson at Piper Sandler wrote in an analysis last week. “We have not seen a technology sector weighting this elevated since Y2K (the year 2000),” Johnson added. “We believe portfolio concentration and risk limits will slow the [fear-of-missing-out] advance in technology stocks.”