Simply put, money is rotating back to “growth” and away from “value.” Recent weeks saw a big surge of interest in beaten-down “reopening” stocks like airlines, banks, industrials , energy. But now it’s fading.
A comparison between the Russell 2000 ( IWM ) against the Invesco QQQ Trust ( QQQ ) is a good proxy for this trend. IWM , heavy on smaller industrial and financial companies, rose 30 percent between the lows of May 14 and the June 8 high. QQQ , loaded with large technology companies, rose just 15 percent over that period.
But now everything is changing. IWM is down about 6 percent from its pre-Fed highs, while QQQ is 1 percent higher. IWM hasn’t even benefited much from strong economic numbers recently, like the New York Fed’s Empire State Manufacturing Index or retail sales. (Those should have lifted cyclical value stocks more.)
The technicals of each also speak volumes because QQQ is above its February highs, while IWM is stuck below its 200-day ( ).
This growth-versus-value debate has occurred a few times in recent years. Value briefly outperformed in late 2016, and again late last year. Both times, it faded and the dominant theme of large-cap technology returned. Based on the current price action, the same thing could be happening again.