Market Overview

Value stocks surge boosts 2020’s losers as investors bet on economic revival

Investors are weighing how much further a rally in value stocks can run, as expectations for greater fiscal spending under a Democrat-controlled Congress add momentum to the surging shares of companies that took a beating for most of 2020. Shares of banks, energy firms and other economically sensitive companies climbed after the Democratic party’s recent victory in the Senate, adding to gains sparked by breakthroughs in vaccines against COVID-19 late last year.

The move in these so-called value stocks, which tend to trade at relatively low price-to-book values, has stood out even in a broader rally that has seen most segments of the markets advance and Treasury yields climb on hopes of an economic revival. The Russell 1000 value index has jumped 14.5% since early November, nearly triple the gain of its growth-stock counterpart, which is dominated by technology.

That kind of outperformance is well outside the norm for value stocks, which badly trailed growth companies in the years since the financial crisis and especially in 2020, when the “stay at home” trend of 2020 buoyed big tech stocks for most of the year. Still, as investors bet an economic revival this year, the rally in value shares may have further to go, if history is any guide.

A BofA Global Research indicator that tracks a number of economic factors is approaching the “mid-cycle” phase, where value has historically outperformed growth 71% of the time, excluding the tech bubble of 20 years ago. The firm’s top picks for 2021 feature a bevy of value names, including Chevron and Hilton Worldwide Holdings. Meanwhile, energy sector funds saw $1.9 billion in inflows last week, their strongest since 2014, according to Deutsche Bank. Tech, by comparison, saw “muted” inflows of around $600 million.

Value stocks surge boosts 2020’s losers as investors bet on economic revival, Reuters, Jun 12

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