September 25, 2001

We apply our Selector Methodology to the BARRA value and growth indices to estimate the likelihood of value stocks in the S&P 1500 outperforming growth stocks in the S&P 1500 and vice versa. The table below reports the estimated probabilities for the last four quarters, the current quarter and the next three quarters. The consensus among the pundits is that the world has changed since the terrorist attack on September 11th. Yet in looking forward and forecasting the future we have to peek at the past. The fact of the matter is that many of the sectors that did poorly in the aftermath of the terrorist attack had previously been experiencing deteriorating earnings. Insofar as the uncertainty is reflected in the market interest rates, and the past is captured by the historical earnings, we may be able to construct reasonable estimates of the likelihood of value stocks outperforming growth stocks and vice versa. The forecast for the next four quarters is quite interesting.

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