“We can assess what the cause is and two things are driving the story,” David Kostin, Goldman’s chief U.S. equity strategist, said by phone. “Some of it is momentum and some of it is stock selection. The question is after that performance, how do funds respond? Do they double-down or do they say over time the economy is growing and the tech sector will see revenue growth, or do they rotate into the extremely expensive consumer staples stocks?”
The advance in the index of underweight stocks is partly attributable to a short-covering rally, according to JonesTrading Institutional Services LLC chief market strategist Michael O’Rourke.
“This kind of volatility forces people’s hands,” New York-based O’Rourke said by phone. “If people are underweight something, more people short it and in this volatile environment those names outperform because every time short people are caught off guard the first thing they do is reverse that move. And there’s no need to go out there and buy overweight if you’re already long.”