Skip to main content
The Globe and Mail
Support Quality Journalism.
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); } //

Investors are weighing how much further a rally in value stocks can run, as expectations for greater fiscal spending under a Democrat-controlled Congress add momentum to the surging shares of companies that took a beating for most of 2020.

Shares of banks, energy firms and other economically sensitive companies climbed after the Democratic Party’s recent victory in the Senate, adding to gains sparked by breakthroughs in vaccines against COVID-19 late last year.

The move in these value stocks, which tend to trade at relatively low price-to-book values, has stood out even in a broader rally that has seen most segments of the markets advance and Treasury yields climb on hopes of an economic revival. The Russell 1000 value index has jumped 14.5 per cent since early November, nearly triple the gain of its growth-stock counterpart, which is dominated by technology.

Story continues below advertisement

That kind of outperformance is well outside the norm for value stocks, which badly trailed growth companies in the years since the financial crisis and especially in 2020, when the “stay at home” trend of 2020 buoyed big tech stocks for most of the year.

Still, as investors bet an economic revival this year, the rally in value shares may have further to go, if history is any guide.

A BofA Global Research indicator that tracks a number of economic factors is approaching the “mid-cycle” phase, where value has historically outperformed growth 71 per cent of the time, excluding the tech bubble of 20 years ago. The firm’s top picks for 2021 feature a bevy of value names, including Chevron Corp. and Hilton Worldwide Holdings Inc.

Meanwhile, energy sector funds saw US$1.9-billion in inflows last week, their strongest since 2014, according to Deutsche Bank. Tech, by comparison, saw “muted” inflows of around US$600-million.

“The lockdown mode ... is going to end at some point and I think Wall Street is getting comfortable with that idea,” said Paul Nolte, portfolio manager at Kingsview Investment Management, which in recent months cut its technology holdings.

Economically sensitive stocks can rebound quickly as growth picks up speed after a recession.

Value stocks saw a 25-per-cent gain, while momentum names lost 30 per cent during a three-month stretch in 2009, when the economy was emerging from the financial crisis, according to Solomon Tadesse, head of quantitative equities strategy for North America at Société Générale.

Story continues below advertisement

More often, however, rallies in value names have tended to sputter over the past decade, and investors said there are several catalysts that could derail the current move.

Among those are delays with the U.S. vaccine rollouts, a potential factor that analysts at Deutsche Bank said was among the top risks to their recently upgraded forecast for U.S. growth.

“Obviously, we all hope that the vaccines ... will get us to a much better place by the second half of the year,” said Doug Cohen, portfolio manager at Fiduciary Trust International. However, there are “no guarantees on that.”

At the same time, Democrats will have little margin for error when it comes to enacting fiscal spending measures, given their razor-thin majority in Congress, analysts said.

U.S. economic growth could top 5 per cent in 2021, on a fourth-quarter on fourth-quarter basis, if lawmakers pass another US$900-billion in fiscal spending over the next few months, analysts at JPMorgan wrote last week, up from their forecast of 3.8 per cent.

Investors will also be paying close attention to corporate views of the economy in the coming earnings season, which kicks off this week.

Story continues below advertisement

Earnings for S&P 500 companies over all are expected to jump about 24 per cent in 2021, according to IBES data from Refinitiv, including strong rebounds for economically sensitive groups such as industrials, materials and financials.

“The outlook has to be good,” said King Lip, chief strategist at Baker Avenue Asset Management. It “would really kick the market into higher gear if we are hearing more companies raise guidance.”

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow topics related to this article:

View more suggestions in Following Read more about following topics and authors
Report an error
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies