Stocks’ Best August in 34 Years Was Big One for Market Castoffs

(Bloomberg) -- Think the only thing that went up in August was tech behemoths and Covid-19 winners? Check the leader board.

While a Bloomberg basket of stocks that benefit most from stay-at-home strictures gained about 9%, so-called reopening stocks surged 16%. Of the 10 best performing companies in the S&P 500 in August, four of them were airline, cruise ship, or casino operators -- each up more than 23%.

“When I look at my portfolio and I look at what’s done the best in the last 30 days, actually the stocks that have done the best are the reopening stocks,” said Andrew Slimmon, senior portfolio manager at Morgan Stanley Investment Management. “These reopening stocks actually on a short-term basis are overbought, but I think they’ll have another leg.”

Not that it’s been a bad month for the mega-cap trade. The Nasdaq 100 rose 11% in August, compared to a gain of 7% for the S&P 500 and 5.5% for the Russell 2000. By one measure, Covid has created one of the widest valuation gaps ever between technology-enabled large companies with lots of cash and smaller firms under pressure from the coronavirus economy. But there’s more than just Fang stocks including Apple Inc. and Amazon.com Inc. catching investor attention under the equity market’s surface.

Royal Caribbean Cruises Ltd. and MGM Resorts International both rose about 40% in August, while Norwegian Cruise Line Holdings Ltd. and Delta Air Lines Inc. each surged roughly 25%. While that could be seen by some as a positive development, proof that the S&P 500’s best August since 1986 wasn’t solely driven by tech behemoths, Slimmon sees the risk-taking as a possible short-term warning.

“The higher the risk in the stock, the better it’s done. Beta is very overbought, and that’s a little bit of a concern,” he said by phone. “But I also know that calling for pullbacks in the market year-to-date has been a very, very big mistake.”

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