Revenge Of The Titans

As far as dramatic turnarounds go, you could scarcely ask for a juxtaposition more stark than what US investors witnessed from Monday to Tuesday.

The rotation fascination that triggered an egregious bout of underperformance for tech and growth morphed into an equally impressive rebound just 24 hours later, as big-cap tech surged the most in months.

US yields fell ahead of a three-year sale, helping to relieve some of the pressure on recently besieged market darlings, many of which fell victim to the bond selloff.

Value has lorded it over growth of late, a marked shift from years of underperformance that many assumed would continue in perpetuity.

Indeed, the “value is dead” market meme was ubiquitous long before COVID came calling. The pandemic simply reinforced the existing trend.

What was an inexorable, long-term grind went completely parabolic. Then, it abruptly reversed as the pro-cyclical narrative became the new zeitgeist (figure below).

That chart shows quite the turnaround, and it speaks to just how stretched secular growth had become.

There were countless days in 2020 when it felt like the high-fliers couldn’t possibly keep outperforming. But the macro backdrop — defined as it was by the persistence of the virus and near constant reminders that at least in some respects, the world would never be the same — propelled the trade further into the stratosphere.

But what goes up… well, you know the old cliché. It’s something about gravity.

Whether Tuesday’s recovery for tech (and growth in general) proves durable remains to be seen. As the figure (above) makes abundantly clear, even a total U-turn in the growth/value dynamic barely made a dent in the grand scheme of things.

If the recovery commences as optimists expect, there’s plenty of room to run for any and all manifestations of the reflation trade, even as one assumes that some commodities are due for a breather (it’s hard to imagine, for example, that Brent is just going to keep climbing until it hits triple-digits). At least for a day, though, the titans were back. The FANG+ gauge rose more than 6% at one juncture.

To be sure, what you see in the simple figure (above) is a welcome reprieve. If we’ve learned anything over the past several weeks, it’s that a swift backup in yields and concurrent corrections (and even bear markets for some names) in richly-valued growth shares make it extremely difficult for the “broader” market to perform. That’s precisely because the “broader” market isn’t really all that “broad.” Years of outperformance from a handful of household tech names led to unhealthy levels of concentration.

Now, one is left to wonder if the reversal (i.e., the rotation) is due for its own correction. A “reversal of the reversal,” if you will. Bloomberg’s long-short value index has recovered pre-pandemic levels — and then some (figure below).

I suppose all I’d add, in closing, is that there are most assuredly signs that “normal” isn’t coming back.

Maybe it’s just me, but it seems as though almost every feature film set for release in the next several months is either going directly to streaming or else streaming shortly after a very brief run in theaters. I think that’s telling.

Would you go to a crowded theater even if Anthony Fauci told you herd immunity had been achieved and you’d been vaccinated? Maybe you would. But I’d guess you’d still wince a bit if the person sitting right next to you sneezed.