(Editor's note: The following is the first of a two-part series analyzing performance characteristics of U.S. stock markets by style and size during the current three-month rally. The final installment "Does Size Trump Style?" can be found here.)

Heading into the second half of 2009, growth is clearly king in terms of stock styles.

But it's facing a strong resurgence by value-oriented investors. Emboldened by depression-like prices just a few months ago, bargain bin shoppers are watching their favorite names score super-sized returns as economic fortunes improve and credit markets revive.

In the ongoing rally that began on March 9 and set a new high-water mark for the year on June 1, the large-cap-dominated Russell 1000 index series, as well as the small-cap-focused Russell 2000 indexes, have shown strong performance slants toward value.

When monitoring the 1000 Value vs. the 1000 Growth benchmarks during the latest rebound, the former has a better-than-7-percentage-point advantage. The Russell 2000 Value Index has about a 3-percentage-point cushion. (See table below.)

But contrast those results to year-to-date benchmark returns through June 1:

• In small-caps, the Russell 2000 Growth has returned 15.76% versus 2.49% for the Russell 2000 Value, or a 13.27-percentage-point pad for growth.

• In large-caps, the Russell 1000 Growth has gained 15.28% versus 1.76% for the Russell 1000 Value, or a 13.52-percentage-point advantage for growth.

The rally, now at 12 weeks, has been strong for both types of style benchmarks, and regardless of size. But it clearly hasn't been enough to erase the damage from a recession that lasted more than 19 months. So the question facing investors as the second half of 2009 unfolds is whether value's run will continue.

In a very general sense, valuations seem to remain reasonable in many key sectors. That would seem to bode well for a continuing surge of interest in value names and sectors. In order for investors to assume more risk, however, much will depend on perceptions of the economy's overall health. If conditions keep normalizing, then long-term historic return patterns suggest that value stocks of all sizes should rebound.

Although value has led growth in this rally, growth has lost less in the past 12 months. That's quite a reversal from the recession of 2000-2002. But notice that gap was miniscule in small-caps while large-caps have enjoyed nearly a 5.4-percentage-point outperformance. It makes sense, given that blue chips are more diversified and less susceptible to the ravages of illiquid credit markets.

Taking a longer-term perspective using the Russell indexing series as a proxy for the overall U.S. marketplace, growth's advantage has proven to be fleeting. In the past 10- and 15-year rolling periods through June 1, value stocks have taken the upper hand ... sometimes significantly.

This Rally Is Different

The following table shows how small-cap value stocks did from March 9 through June 1. The sector weightings are rounded and apply to the last day of the period studied.

The top-performing sector in both indexes during the rally has been energy. The difference between which names are considered value and growth, however, is creating quite a gap in returns. Russell separates the styles by price-to-book ratios and growth rates; those with lower values go to the 2000 Value Index, while stocks with higher valuations go to the growth benchmark.

But both feature relatively low turnover rates. That means an overwhelming majority of the names now in each benchmark were there a year ago. When those same stocks were taking a brutal beating last year, the relative outperformance in growth has likewise given greater upside to value names in a rally.

The same outperformance by small-cap value names holds true for health care, technology, consumer discretionary, producer durables and financial services. Ironically, counting energy, those are the six biggest sectors in the growth benchmark and account for almost 90% of its holdings.

In fact, only the three smallest sectors in the Russell 2000 Growth Index are outperforming those same segments in their sister value benchmark.

Unfortunately for small-cap value investors, the edge by financial services hasn't been stable. Last week before the big breakout session on June 1, stocks in that sector of the Russell 2000 Growth Index were slightly ahead.

Conversely, other bedrocks of traditional value indexes have been under-performing their lower-weighted growth cousins. Traditional areas of strength in value investing such as materials and utilities are all doing better on the small-cap growth side in the past three months. (See a more in-depth review in the second part of this series.)

So while value-style stocks are leading growth in small-caps, that cushion isn't coming from traditional bastions of value investing.

Rather, small-cap value benchmarks are showing more resilience these days as a result of holding at least some growth. In other words, diversification is proving quite beneficial during this market cycle as indicated by the Russell small-cap style indexes.

[Coming in Part Two: A closer look at large-cap stock performances in this current rally.]