The next big stock market shift could come from an unexpected source

In an ironic twist, the most downtrodden part of the stock market could be the main driver of its next leg higher.

Even more surprising: the investor base most responsible for this shift won't be flashy Wall Street types, armed with their sophisticated trading algorithms. It'll be retirees.

The market segment in question is value stocks, or companies seen as trading at a discount to fair value. Retirees are already attracted to value stocks because of the dividend yield the group has historically provided, but the pot just got even sweeter.

Value stocks are now expected to see stronger profit expansion than growth stocks, or companies viewed as having high potential for share appreciation, but not necessarily yield growth.

value vs. growth EPS growthS&P Dow Jones Indices LLC

Meanwhile, rock-bottom bond yields have left retirees starved for returns, and the Federal Reserve has done little to improve the situation. This only adds to the appeal of value stocks.

"Even as the Fed has continued to slowly raise the Federal Funds rate, fixed income yields have held at historically low levels, leaving few options for retiree investors who need to generate income from their investments," Mike Thompson, chairman of S&P Global Market Intelligence's Investment Advisory Services portfolio strategy committee, wrote in a client note. "Many of these investors are turning to value stocks to fill the void."

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Traders gather at the post where Snap Inc. is traded, just before the opening bell on the floor of the New York Stock Exchange (NYSE) in New York, U.S., May 11, 2017. REUTERS/Brendan McDermid
Traders gather at the post where Snap Inc. is traded, just before the opening bell on the floor of the New York Stock Exchange (NYSE) in New York, U.S., May 11, 2017. REUTERS/Brendan McDermid
Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., May 3, 2017. REUTERS/Brendan McDermid
A trader works on the floor of the New York Stock Exchange at the closing bell of the Dow Industrial Average, May 10, 2017 in New York. Wall Street stocks dipped early Wednesday, with Disney shares sliding on worries about its ESPN network, and as the market weighed President Donald Trump's shock firing of FBI director James Comey. / AFP PHOTO / Bryan R. Smith (Photo credit should read BRYAN R. SMITH/AFP/Getty Images)
A video board displays the day's closing numbers at the New York Stock Exchange after the closing bell of the Dow Industrial Average, May 10, 2017 in New York. Wall Street stocks dipped early Wednesday, with Disney shares sliding on worries about its ESPN network, and as the market weighed President Donald Trump's shock firing of FBI director James Comey. / AFP PHOTO / Bryan R. Smith (Photo credit should read BRYAN R. SMITH/AFP/Getty Images)
Traders work on the floor of the New York Stock Exchange at the closing bell of the Dow Industrial Average, May 10, 2017 in New York. Wall Street stocks dipped early Wednesday, with Disney shares sliding on worries about its ESPN network, and as the market weighed President Donald Trump's shock firing of FBI director James Comey. / AFP PHOTO / Bryan R. Smith (Photo credit should read BRYAN R. SMITH/AFP/Getty Images)
Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Monday, May 8, 2017. U.S. stocks slipped from all-time highs, while Europe's common currency weakened following a convincing defeat of populism in France's presidential election that investors had already priced in. Photographer: Michael Nagle/Bloomberg via Getty Images
Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Friday, May 5, 2017. U.S. stocks fluctuated with the dollar and Treasuries as a rebound in hiring added to optimism that the economy is on firm footing, boosting speculation the Federal Reserve will raise interest rates. Photographer: Michael Nagle/Bloomberg via Getty Images
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Looking beyond the Fed's actions, U.S. economic conditions are also creating an ideal situation for value investing. Thompson at least partially attributes the shift in earnings growth expectations to the continued slow recovery of the U.S. economy — a development seen hindering the further appreciation of growth stocks from current levels.

Political stagnation is also having an effect, with the proposed policies that drove stocks higher after the election seemingly stuck in limbo. Because of that, "investors are adjusting to a slower-growth mindset," Thompson wrote.

Further, while value stocks are, by definition, cheaper than their growth peers, the price divergence between the two groups in recent months is creating even more of a buying opportunity than usual. Thompson points out that while the S&P 500 Value Index is trading just below historical levels, the S&P 500 Growth Index currently sits well above its three-year average.

This valuation development "may switch investors from momentum stocks and still keep pushing the market higher," he said.

S&P Value vs. Growth valuationsS&P Dow Jones Indices LLC

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