The Dow, S&P, and Nasdaq Composite are up modestly this morning as the market attempts to prolong its vaccine rally. Bulls came out in full force on Monday after Pfizer (NYSE: PFE) and BioNTech (NASDAQ: BNTX) announced a 90% effective Covid-19 vaccine.
Now, buyers seem to be in much shorter supply, even if Wall Street still believes the bull market should continue.
“This week’s positive vaccine news is a game-changer in our view, as it allows the market to look through the recent surge in COVID-19 cases to the impending end of the pandemic and broader reopening of the economy,” explained JPMorgan chief strategist Marko Kolanovic, in a note written by his team of analysts.
“We expect equities to continue to rally, and bonds to sell off. We retain a pro-risk allocation in our model portfolio given the easing of major market risks, still moderate investor positioning, strong growth rebound, and robust policy support.”
Kolanovic famously called the market’s reversal back in March, right after it bottomed in response to the coronavirus pandemic. JPMorgan has increasingly tilted its portfolio toward equities over the last year.
Today, Kolanovic pushed it overweight another 2% (from 8% to 10%) while taking its government bond positions further underweight (from minus 11% to minus 12%). Most other major investment firms have assumed the same stance.
And who could blame them? With a heap of stimulus and an unprecedentedly dovish Fed in tow, short-term bulls had a great year.
Longer-term, however, the “buy and hold” crowd is finally above breakeven. They, along with Wall Street, need those gains to persist through 2021 if they’re going to beat an ever-surging monetary supply.
But instead of focusing on growth stocks, which have already done very well during the pandemic, many analysts claim the next big opportunity will arise from value shares.
“We look to take advantage of any pullback in the S&P 500 and Russell Value Index over coming weeks,” said Tony Dwyer, Canaccord Genuity’s chief market strategist, in a note.
Mark Haefele, UBS Global Wealth Management’s chief investment officer, shares a similar sentiment.
“We believe the investor rotation toward more cyclically exposed sectors is far from over,” he wrote.
Citigroup’s chief U.S. equity strategist Tobias Levkovich also believes a change in trends is almost here.
“Our proprietary lead [economic] indicator model is arguing for the style allocation shift,” Levkovich remarked, citing an inverse relationship between growth stock performance and positive economic indicators.
If the U.S. economy actually recovers quicker than expected thanks to a vaccine, then it might be worth applying Levkovich’s hypothesis to your own portfolio:
Target value stocks instead of growth when unemployment sinks, and quarterly earnings rise.
The major hurdle preventing that scenario from occurring is a national 4-to-6-week lockdown, which Joe Biden’s Covid advisor has recommended as a way of fighting the coronavirus. In that case, Levkovich’s model suggests that growth stocks should resume their dominance.
For investors looking to do a little maneuvering, it’s an arguably solid plan supported by almost a year’s worth of data.
Which, in the end, could even help short-term traders overachieve while the market attempts to make up its mind.