Breaking Down the Market: High Expectations, Passive Risks, and Value Resurgence

Dan Lysik’s Mid-Year 2025 Market Views: The Value Landscape

On our recent investor call, Dan Lysik, portfolio manager for the Miller Deep Value Select strategy, shared a data-rich perspective on market volatility, valuation trends, and investment opportunities in an increasingly concentrated and high-expectation equity landscape.

Here are the highlights:

Market Volatility & Uncertainty

The U.S. Economic Policy Uncertainty Index recently hit 700+, surpassing the 2020 COVID peak (~500), largely due to tariff-related concerns in April.
Despite short-term spikes, long-term expectations suggest a return to historical average uncertainty levels.

Market Leadership Trends

Post-COVID market leadership was driven by large-cap growth and AI-related tech.
Looking ahead, the setup appears favorable for broadening participation, particularly among lower market cap and lower valuation equities.

Valuations & Passive Index Risks

A growing concentration of the S&P 500 is held by companies trading at 10x+ price-to-sales — now exceeding 25% of index weight, a level only seen at dot-com and 2021 peaks.
The Russell 1000 Growth Index has over 55% of its weight in such high-valuation stocks.
This trend introduces long-term return risks and highlights potential headwinds for passive investing.

Mega Cap Concentration vs. Value

The top 5 companies in the S&P 500 now make up nearly 30% of its weight — a record high.
Meanwhile, value stocks are at historical lows in terms of weighting and performance.
Historical parallels (e.g., post-2000) suggest a potential reversal, favoring value over growth in the coming years.

Small Cap Value: Attractive Opportunity

Small-cap valuations are at extreme discounts versus large-cap stocks — more than 2 standard deviations below the historical average.
A modest reallocation from large to small caps could drive significant performance (e.g., 1% shift from top 10 S&P companies = 7% boost in Russell 2000).
Historically, small cap value has performed strongly following drawdowns, with 67%+ average returns one year after major lows.

Stock Highlights & Sector Views

Insurance & Housing Picks:

Jackson Financial (JXN) and Lincoln Financial (LNC): Attractive yields and undervalued relative to earnings and book value.
Jeld-Wen (JELD): Housing-related stock with a transformation plan underway and improving margin potential.

Energy Sector:

Currently under-owned and undervalued despite strong earnings contribution.
Nabors Industries (NBR): Leading energy services company with a growing tech-driven drilling solutions segment. Trades well below intrinsic value with significant free cash flow potential.

Conclusion

Market extremes in valuation and concentration present risks to passive investors, while small-cap value and select sectors like energy offer compelling, overlooked opportunities. As uncertainty normalizes and capital redistributes, active strategies may significantly outperform over the next cycle.

Comments from Miller Value LIVE Investor Call dated 7/22/25

Daniel Lysik, CFA is a portfolio manager for Miller Value Partners.

Miller Value Partners, LLC (“MVP”) is a registered investment adviser. More information is available at https://adviserinfo.sec.gov/firm/summary/110632

Companies discussed during the call are intended to provide insights into Miller Value’s investment thinking and process. JELD, LNC and JXN were discussed on prior calls; the portfolio manager provided an update to the investment thesis. Nabors was discussed as the portfolio manager believed Energy was highly out of favor at the time of the call.

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The US Policy Uncertainty Index measures policy-related economic uncertainty using three underlying components: news coverage, federal tax code provisions, and the Federal Reserve’s Survey of Professional Forecasters. The S&P 500 Index is a market capitalization-weighted index of 500 widely held common stocks. Investors cannot invest directly in an index and unmanaged index returns do not reflect any fees, expenses or sales charges. Price to sales ratio is a tool for calculating a stock’s valuation relative to other companies. It is calculated by dividing a stock’s current price by its revenue per share. The Russell 1000® Growth Index measures the performance of those Russell 1000 Index companies with higher price-to-book ratios and higher forecasted growth values. The Russell 2000® Index is a small-cap stock market index that makes up the smallest 2,000 stocks in the Russell 3000 Index.