A Year After Vaccine Jolt, Bet on Value Stocks Disappoints
(Bloomberg) -- A year ago, Pfizer Inc.’s shockingly good Covid-19 vaccine efficacy data triggered bets that cheap stocks would outperform shares of fast-growing companies in the ensuing market rally. That call has worked, but only barely.
MSCI Inc.’s index of global value stocks has outpaced its growth-stock counterpart by just 3 percentage points since the U.S. drugmaker and partner BioNTech SE said on this date last year that their shot prevented most coronavirus infections. Just last month, companies with faster projected earnings growth posted their best monthly return in 11, beating the gains in cheaper shares.
For a while following the vaccine news, value stocks outperformed on the back of recommendations by numerous strategists that an accelerating economic recovery and higher bond yields would drive a rotation out of more expensive companies.
But many market experts underestimated the extent of the earnings resilience of the likes of Google parent Alphabet Inc. and chipmaker Nvidia Corp., which continued attracting investors. And investors have worried that a global supply squeeze and a resurgence in coronavirus infections will curb growth and keep interest rates lower for longer.
“The value rally stopped in May this year and has been dead ever since,” said Peter Garnry, head of equity strategy at Saxo Bank. “I think growth will continue to outperform value long-term as I don’t see the profit spread narrowing any time soon unless commodity prices and interest rates come way up from current levels.”
As part of the shift to value stocks, many brokerages also recommended a transatlantic switch into the lower-priced European market from more growth-heavy U.S. indexes. But that hasn’t paid off, even as European banks and energy sectors surged, and the region still underperformed the U.S.
Some strategists say the value rally still has legs. Goldman Sachs Group Inc., JPMorgan Chase & Co. and Barclays Plc recently reiterated their preference for cheaper stocks. JPMorgan on Monday recommended that investors buy stocks in the U.K., a long-beaten-down market that’s trading at a 38% discount to global peers.
A Year On From Jab Joy, Value Could Use a Booster: Taking Stock
Not all growth stocks have done well. While the two investing styles have performed almost in line with each other, the arrival of vaccines and the economic reopening have certainly weighed on the lockdown winners among pricier shares.
Shares of Peloton Interactive Inc., the maker of connected exercise bikes, got hammered last week on evidence that the Covid-19 boost has faded. TeamViewer AG, a maker of remote working software, and online retailers Asos Plc and Boohoo Group Plc faced a similar fate in Europe recently.
On the other hand, progress by Merck & Co. and Pfizer in developing medicines to treat Covid-19 has given a renewed lift to travel and leisure stocks, many of which have yet to scale their pre-pandemic highs. That’s encouraging some investors that value stocks are ready for the next leg of their rally.
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