A fast and furious rotation into value shares is sweeping Wall Street while long-time market favorites -- technology shares -- are extending their decline.
Across the world, shares tied to economic growth are outperforming as the commodity rally helps push bond-market inflation bets toward a 15-year high.
A strategy that bets on U.S. equities that look undervalued and against expensive ones is rising again on Tuesday after posting its biggest rally in two months on Monday. The Nasdaq 100 fell as much as 2% at the open, compared with a 1.1% drop for the Dow Jones Industrial Average.
“Renewed value leadership at the factor level and the broader risk-on rebound suggest the economic cycle is continuing rather than peaking,” Evercore ISI strategists led by Dennis Debusschere wrote in a note.
The Russell 1000 Value Index has jumped more than 1.3% this month while the Nasdaq has lost money. It’s all shaking up the world of exchange-traded funds, where assets in value ETFs have firmly overtaken those of funds tracking the growth investing style, according to smart-beta data compiled by Bloomberg Intelligence.
All this means quant investors who stuck with value during its historic pounding in the pandemic are getting their mojo back, while traders crowding into speculative tech-heavy corners of the market including Cathie Wood’s ARK funds are on the back foot.
It’s a comeback long in the making. Value shares -- or those with low prices relative to some fundamental indicator like earnings -- are typically more dependent on the business cycle than tech stars like Tesla Inc. They have been persistent laggards in recent years, especially when last year’s lockdowns drove investors further into stay-at-home names like Zoom Video Communications Inc.
But while most value revivals have proved fleeting in the post-crisis bull years, a slew of analysts now say the stars are aligned for this one to last.
Higher inflation expectations have tended to favor value, since it typically comes with faster economic growth and higher bond yields, hurting tech stocks whose long-term prospects now have to be discounted at higher rates.
Over the past month, the energy, materials and financial sectors have led the S&P 500. Tech has been the worst performer.