Business & Investment

A surge in value stocks boosts 2020 losers as investors bet on Reuters economic recovery

© Reuters.File Photo: Washington Hilton hotel room in Washington is illuminated in the shape of a heart


Luis Klauskov

New York (Reuters)-Investors rise in value stocks as expectations for higher fiscal spending under Democratic-controlled parliament gain momentum on the surge in stocks of companies hit by most of 2020 Is considering how far we can go.

After the Democratic Party’s recent victory in the Senate, stocks in banks, energy companies and other economically sensitive companies have risen, adding to the profits caused by the vaccine breakthrough against COVID-19 at the end of last year.

These so-called value stock movements, which tend to trade at relatively low price-to-book ratios, are broader than we’ve seen most segments of the market move forward and Treasury yields rise based on economic wishes. It also stands out at the rally. Resurrection. The Russell 1000’s value index surged 14.5% from early November, nearly triple the gain of its technology-dominated growth counterparts.

This type of outperformance is the standard for value stocks that have significantly overtaken growing companies in the years following the financial crisis, especially in 2020, when the 2020 “stay-at-home order” trend pushed big tech stocks up most of the year. Is far beyond.

Still, as investors are betting on this year’s economic recovery, value stocks may need to rise further if history is helpful.

BofA Global Research’s indicators, which track many economic factors, are approaching the “midcycle” phase. In this phase, the value has historically exceeded growth by 71%, excluding the technology bubble 20 years ago. The company’s top picks in 2021 have a variety of valuable names, including: Chevron (NYSE :) and Hilton Worldwide Holdings (NYSE :).

Meanwhile, energy sector funds recorded a $ 1.9 billion inflow last week. This is the strongest since 2014. Deutsche Bank (DE :). By comparison, Tech saw a “muted” inflow of about $ 600 million.

“Lockdown mode … ends at some point and I think Wall Street is happy with the idea,” said Paul Norte, portfolio manager at Kingsview Investment Management.

(Graphics: Value stocks overtake growth: https: //

Economically sensitive stocks can recover rapidly as post-recession growth accelerates.

Value stocks have grown 25% in the three months since the financial crisis of 2009, according to Solomontadesse, head of quantitative equity strategy for Societe Generale (OTC) in North America. Decreased by 30%. :).

However, in many cases, the rise in value names has tended to burst over the last decade, and investors said there are some catalysts that could upset the current move.

Among them was the delay in US vaccine adoption, which Deutsche Bank analysts said was one of the greatest risks to the recently upgraded US growth forecast.

“Obviously, we all hope that the vaccine will take us to a much better place by the second half of this year,” said Doug Cohen, portfolio manager at Fiduciary Trust International. However, “there is no guarantee about it.”

At the same time, the Democratic Party said there would be little room for error when it comes to enacting fiscal spending measures, given the very small majority in parliament.

JP Morgan (NYSE :) analysts said last week that US economic growth could exceed 5% in the fourth quarter on a fourth-quarter basis in 2021, with lawmakers adding another $ 900 billion in the coming months. Expected to be 3.8% if it passed the fiscal expenditure of.

Investors will also pay close attention to the company’s view of the economy for the upcoming earnings season starting this week.

According to Refinitiv’s IBES data, overall enterprise revenue is expected to increase by approximately 24% in 2021. This includes strong rebounds for economically sensitive groups such as industry, materials and finance.

“The outlook must be good,” said Kingrip, chief strategist at Baker Avenue Asset Management. “If you hear more companies release guidance, it will really drive the market to higher gear.”

A surge in value stocks boosts 2020 losers as investors bet on Reuters economic recovery A surge in value stocks boosts 2020 losers as investors bet on Reuters economic recovery

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