Bernstein says a sustained rebound for value stocks will require a steeper yield curve. But with yields pinned down by an ultra-dovish Federal Reserve and long-term inflation expectations relatively low, significant steepening looks a long way off.
Meanwhile, the evidence is suggesting markets remain one big macro-driven trade.
The global average correlation between stocks still hovers near the highest since at least 2000, according to Bernstein. It reckons equity factors including growth, momentum, quality and low volatility are practically trading as one, and they have a near perfect inverse correlation to value.
That’s a sign of a deeply bifurcated market teeming with big-picture risks, and one reason defensive investing styles have boomed in the pandemic.
“Market returns are a function of sector and factor exposure to a greater extent than any time since the global financial crisis,” Evercore ISI strategists led by Dennis DeBusschere wrote in a note.
--With assistance from Lu Wang.
This article was provided by Bloomberg News.