For a lasting renaissance in value to hold, interest rates need to rise, according to Esty Dwek, head of global market strategy for Natixis Investment Managers. Higher yields are usually viewed as key for value because that benefits banks, an industry that dominates the style. However, Treasury yields hovered near record lows amid Federal Reserve monetary stimulus.

“It’s going to be tricky to get a proper rotation into value without rates moving higher and I don’t see why rates would move higher in the short term at all,” Dwek said. “It’s almost been the case of going down less than some of these growth stocks that were correcting a bit more. I’m not sure we are going to witness a serious rotation for now.”

Whether this rotation to value will persist is anyone’s guess. Investors surveyed by Bank of America Corp. have never been so unanimous in their conviction on the most popular asset class, with 80% of participants citing long U.S. tech. As a result, they’re rotating into value stocks with exposure in industrial companies rising to the highest level since January 2018.

BofA strategists including Riddhi Prasad tracked vaccine news and found the prospect of a COVID-19 vaccine success has shown a close relationship with value’s relative performance to growth. Despite a number of false starts, a potential rotation out of growth into value “appears to be in the cards again,” they wrote in a note.

Not only would such a shift help broaden participation, putting the market on a sturdy footing, it also signals confidence in the economy that will sustain further gains, according to Jerry Braakman, chief investment officer of First American Trust in Santa Ana, California.

“Is there really a leadership shift? People would probably like to see that leadership shift because that means, from an economic perspective and a Covid perspective, things have improved and that we’re not going to go back and have another run at closures,” said Braakman. “You know, that’s very hard to predict because we don’t know until we go through that.”

--With assistance from Sarah Ponczek, Vildana Hajric, Claire Ballentine and Melissa Karsh.

This article was provided by Bloomberg News.

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