Value stocks and growth stocks have recently created angst for investors. Value investing reflects an entrenched, losing momentum and the growth style increasingly appears like a bubble in search of a bust. This isn’t exactly a new trend—growth has been besting value for much of the last 15 years, but it has accelerated mightily since year-end, escalating concerns among both value and growth investors.
Many believe the stock market rally during this pandemic is nothing more than a sugar high orchestrated by the Federal Reserve. Liquidity trends have always been important for the financial markets, and undoubtedly, the outsized policy-push by monetary officials has played a significant role in the market’s recent success.
Company earnings are currently collapsing but the coming year’s consensus profit expectations are poised to lift. Several indicators that have historically been highly correlated with improvement in profit forecasts have recently turned higher and the backdrop of massive policy stimulus is supportive for upgraded outlooks.
As economic activities restart around the country, bond yields have also begun to climb. Last week, the 10-year U.S. Treasury yield rose by about 25 basis points, to its highest level since March 19th, marking only the second time since yields collapsed that they showed any sign of leaving the “sub-1%” area.
Despite several issues of importance—national riots, an upcoming presidential election, Chinese relations, and an ongoing pandemic—the stock market is primarily focused on a single thing: the restart of U.S. and global economic activities. There is a worldwide, synchronized economic bounce afoot. Because of the unprecedented magnitude of the recent Covid-19 economic collapse (can it really get much worse?), economic news seems poised for a period of improvement.
Many believe it will take years to fully recover from Covid-19. Indeed, over the weekend, U.S. Federal Reserve chairman Jerome Powell suggested that although the economy will eventually recover, the process could stretch through until at least the end of next year and ultimately depends on the development of a vaccine.
The attempt to re-open parts of the U.S. economy amidst the ongoing Covid-19 crisis is either Red, Blue, or Purple! Using data from an employment tracking tool utilized by 100,000+ local businesses across the United States, the accompanying chart illustrates the speed and depth of the decline in hours worked and its recent slow recovery among traditional Republican, Democratic, and Swing states.