There was a lot of talk earlier this year about the rotation out of growthy tech names and into value stocks.
But now there are signs that the great rotation is over.
The S&P 500 hit a new record high on Monday, but investors who were loading up on value plays are now moving back into some familiar tech names.
Reopening stocks like Caterpillar (NYSE: CAT), Deere (NYSE: DE), CF Industries (NYSE: CF), Mohawk (NYSE: MHK), and D.R. Horton (NYSE: DHI) that surged earlier in the year are all down over the last month after having topped out in May.
Even bank stocks are beginning to crack.
Bank of America (NYSE: BAC) is down 4.5% for the week, JPMorgan (NYSE: JPM) has dropped more than 5%, KeyCorp (NYSE: KEY) is down 5.7%, and Zions Bancorp (NASDAQ: ZION) is down more than 6% over the last week.
“History, valuations, positioning, and economic deceleration indicate that most of the rotation [from growth to value] is behind us,” Goldman Sachs’ Ben Snider and David Kostin said in a note.
Investors are now starting to move back into growth stocks, with Google-parent Alphabet (NASDAQ: GOOGL), Roku (NASDAQ: ROKU), Shopify (NYSE: SHOP), Spotify (NYSE: SPOT), Teladoc (NYSE: TDOC), and Zoom Video Communications (NASDAQ: ZM) all seeing big gains in the last month.
Alphabet has gained 7.6% over the last month. Roku is up more than 8%. Spotify has jumped nearly 12%. Zoom has risen 19%. And Shopify has gained a whopping 28% in the last month. All six stocks are outperforming the S&P 500’s gain of just 2.28% over the last month.
“The value trade is unwinding, and the growth bulls are winning,” said Alec Young, chief investment officer at Tactical Alpha. “Value is a more economically sensitive sector because value is weighted toward Industrials, Energy, Materials, and small caps.”
“Early in the economic cycle, coming out of a recession, there is more earnings leverage from value stocks, so they are a better investment,” Young added. “The problem is that everything has been compressed. We went into a recession really fast, and we came out of it fast, partly due to all the stimulus. Growth stocks now offer more reliable growth and are less subject to the vagaries of the economic cycle.”