The Middle Eastern conflict has severely affected the stock markets.
From the US to Europe to Asia, markets are bleeding, and stocks that have enjoyed a strong run prior are coming down to reality.
At this juncture, underdog investment strategies such as value are outperforming conventional winners such as growth, quality, and momentum, which perform well during bull markets.
Should investors pile into these stocks as a hedge during the conflict?
Value for the win?
The value investment strategy has so far outperformed the broader US market and other strategies in 2026 so far.
The MSCI US Value ETF has gained around 5% in the year.
While that may seem minuscule, the broader S&P 500 has fallen 3.41% in the same time period.
The MSCI US Growth index fell 7.3% in the same period, while the quality index was down 2.5%.
The performance of the value index has been driven by stocks like Micron (46% gain), ExxonMobil (28% uptick), and Johnson and Johnson (14% surge).
The Middle Eastern conflict has rattled global equity markets, triggering a broad-based selloff across regions and prompting investors to reassess portfolio positioning.
Against this backdrop, value stocks have emerged as relative outperformers, raising a key question: can they serve as a hedge in times of geopolitical stress?
Why are value stocks outperforming right now?
Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank, said the rotation into value stocks began even before the latest geopolitical tensions.
“Value stocks have been popular since the last quarter of last year as investors rotated from highly valued US big tech stocks toward relatively cheaper non-tech and non-US pockets of the market,” she said.
She added that softening financial conditions and rising concerns over the scale of Big Tech’s AI investments have supported this shift.
However, she noted that the macro backdrop is now evolving.
“The Middle East tensions and rising energy prices are fueling global inflation expectations, leading to a hawkish shift in central bank expectations,” Ozkardeskaya said.
Lacie Zhang, Research Analyst at Bitget Wallet, said the current outperformance reflects a broader rotation away from concentrated growth trades.
She noted that investors are moving “toward more attractively valued segments of the market,” supported by improving fundamentals in cyclical sectors and moderating interest-rate expectations.
“At the same time, strategies such as quality and momentum… have faced headwinds from concentration risk and early signs of mean reversion,” Zhang said, adding that value has historically acted as “a stabilising factor during periods of market transition.”
Which sectors and stocks are driving the rally?
Ozkardeskaya pointed to strong inflows into energy, mining, industrials, and financials, though she cautioned that financials are now facing pressure from private credit risks.
Zhang said financials have been a major driver of value’s strength.
“Financials have been among the largest contributors to value’s relative strength, supported by improving net interest margins, solid balance sheets, and strong returns on equity,” she said.
She added that communication services and select energy and industrial companies have also contributed, benefiting from cyclical recovery and improved earnings outlooks.
This is reflected in the performance of Micron, ExxonMobil, and Johnson & Johnson, which have helped lift value indices this year.
Are value stocks a safe hedge during the conflict?
Ozkardeskaya said the current macro environment could support value in the near term.
“A period of tighter financial conditions could continue to support value names — as they’re less cyclical and more stable,” she said.
However, she cautioned that the trend may not be permanent.
“I still believe that tech-led growth names have a higher upside potential in the coming years due to AI adoption,” she said, warning that “waning global risk appetite could reverse rotation flows.”
Zhang echoed that value’s role may be more cyclical than structural.
“In this context, value’s strength underscores its historical role as a stabilising factor during periods of market transition,” she said.
Can value leadership sustain going forward?
Ozkardeskaya suggested that while value may benefit from current conditions, shifting sentiment could alter the trend.
“Waning global risk appetite could reverse rotation flows, and the latter could favour Big Tech, again,” she said.
Zhang said value could continue to lead in the near term as markets rebalance, but highlighted the long-term strength of quality strategies.
“Value leadership may persist in the near term as markets continue to rebalance,” she said.
However, she added that “quality factors tend to reassert their leadership due to durable earnings growth, strong balance sheets, and lower volatility.”
For investors, Zhang recommended a diversified approach.
“The more resilient approach is not choosing one factor over the other but blending both value and quality exposures,” she said.
Bottom line
Value stocks have outperformed in 2026 and may continue to benefit from the current mix of geopolitical uncertainty, inflation risks, and tighter financial conditions.
However, their role as a hedge may be temporary.
Over the longer term, growth and quality stocks—particularly those tied to AI—could regain leadership.
For investors, balancing exposure across both value and quality factors may offer the most resilient strategy in an uncertain market environment.
The post Can value stocks like Micron, Exonn hedge Middle East conflict risk? appeared first on Invezz
