Checkmate

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What's going on?

Investors have gone back to snubbing cheap-looking value stocks in favor of much-beloved growth stocks proving that if you come at the king, youd best not miss.

What does this mean?

Growth stocks think fast-growing tech companies had a strong 2020, climbing 37% in the US and 18% in Europe. That wasnt the case for value stocks like banks and energy companies, which didnt rise at all in the US and fell 20% in Europe. But all that changed when news of the effective vaccines broke in November: investors ditched growth stocks for value stocks, in hopes the recovery would soon be underway and beaten-down companies would be the ones to benefit the most.



It, uh, didnt last long: growth stocks have gone back to outperforming value stocks in the last month.

Why should I care?

For markets: Sit tight, the road to recoverys a long one.


Investors return to growth stocks suggests theyre not feeling confident the economy will recover nearly as quickly as economists are expecting. And given all the vaccine rollout difficulties and the spike in new variants, theyre not likely to change their minds any time soon. That means they might be more inclined to stick with growth stocks which have done well out of the pandemic until vaccinations pick up, and only then start to think about other opportunities.



The bigger picture: Investors might be too gung-ho on stocks.


Still, theres no doubt in investors minds that stocks are the place to be: global investors poured a record amount of money into equity funds especially those focused on US and tech stocks at the start of the month. But Bank of America has cautioned things might be getting out of hand: investor optimism is nearing levels where global stocks have historically pulled back by an average of 9% in the following three months.

Originally posted as part of the Finimize daily email.

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