The rebound of US stocks, which are most sensitive to the economy, will be unsustainable, such as slow economic growth, international tensions and ominous signs from the US bond market.
However, it still shows that a long short strategy for value stocks has achieved its best three-day trend since June. Compared with the S & P 500, the Russell 2000 small cap index has just soared to a two month high. Airlines, hotels and cruise lines, the biggest losers in the current outbreak, have been outperforming big tech stocks.
hopes for fiscal stimulus and vaccines have inspired animal spirits among investors and rekindled the debate over stock market rotation. Goldman summed up the dilemma in a report this week: riskier industrial stocks were upgraded, but defensive technology stocks continued to be held by investors.
JP Morgan called the recent stock market trend a “tactical rebound of value stocks”, after the valuation gap between these lagging stocks and defense stocks reached the highest level. Like companies like Sanford C. Bernstein, the investment bank sees no reason to expect a stronger rally in these stocks.
the team of strategists pointed out that the uncertainty of Global trade and the market’s belief that the dollar will not fall sharply further are the reasons why they think the stock market rotation will not last for a long time.
all of this reflects a long-standing divergence in the market, with growth stocks expected to have strong long-term cash flow, while seemingly cheap stocks have been severely exacerbated by the epidemic. Moreover, there are signs that such differences are emerging again. On Wednesday, as all other sectors of the tech sector outperformed, the value of all sectors fell.
in general, value stocks and small cap stocks are more vulnerable to economic cycles, so they tend to perform best when a steeper U.S. bond yield curve indicates an improvement in economic expectations. While this is controversial in some ways, it is a common rule of thumb for Wall Street strategists.
Bernstein said the premise of a sustained rebound in value stocks was that the yield curve was steeper. However, due to the extreme dove Fed’s suppression of yields and the relatively low long-term inflation expectations, it seems that there is still a long way to go for the yield curve to steepen sharply.
Bernstein pointed out that the average correlation of global stock markets is still hovering at the highest level since at least 2000. The division believes that the stock market factors, including growth, momentum, quality and low volatility, are actually a whole and have a nearly perfect inverse correlation with value.
this indicates that this highly differentiated market is full of overall risks, and it is also one of the reasons for the rapid rise of defensive investment style in this epidemic crisis.