Goldman Sachs’ weak balance-sheet basket -- which excludes financials and utilities -- measures financial strength among S&P 500 companies using metrics such as levels of debt relative to total capitalization, based on information from the New York bank. These businesses benefit from economic growth because increased revenue allows them to pay down their obligations more easily, Ghriskey said.

The basket with high operating leverage also excludes financials and utilities. A larger portion of the costs for these S&P 500 companies is fixed compared with their sector peers, so an improvement in sales causes a disproportionate boost to profits, he said.

Companies in the latter group are “positioned to do well in this environment” because they have greater earnings sensitivity to an improving economy, said Eric Teal, chief investment officer at First Citizens BancShares Inc., which manages $4.5 billion in Raleigh, North Carolina. Investors’ preference for these stocks reflects the “risk-on environment we’ve seen in the past few months.”

Other Criteria

Teal’s fund includes companies with high operating leverage, though it also considers other criteria, he said. “You need to be a little cautious about keeping a balance” between leveraged equities and more conservative strategies that focus on higher returns on equity and dividend yields.

Investors also may question whether the momentum in these groups will continue amid concerns about fiscal and political strife in Washington, according to Cliff Remily, executive vice president and portfolio manager at Pacific Investment Management Co. in Newport Beach, California, which oversees $1.8 trillion in assets. “The risk to the downside is pretty dramatic, so investors need to ensure they’re getting compensated for that.”

President Barack Obama urged Congress on Feb. 5 to postpone automatic spending cuts scheduled to begin March 1 to avoid “real and lasting impacts” on U.S. expansion. He signed a compromise into law Jan. 2 that averted income-tax increases on most Americans and delayed the cuts in what’s become a fiscal showdown related to raising the U.S. debt ceiling.

Investment Hindsight

While Remily prefers a trifecta of improving operating leverage, top-line growth and attractive multiples in his portfolio picks, these baskets are “completely relevant” to gauge investors’ appetite for risk and their expectations for economic growth, he said. “In hindsight, it would’ve been great to invest in these groups about six months ago.”

If the economy weakens, as it did in 2011 and 2012, the rally in stocks with high operating or financial leverage could stall, Teal said. Those slowdowns were marked by a “flight to safety and quality” in the market, he said. Now sentiment is changing as improvements -- particularly in housing and employment -- appear to be “a bit more lasting than in the past two years,” Ghriskey said.