- Over the past two weeks, value stocks have started to outperform growth stocks, and the rotation "could have legs," according to a note from Bank of America published on Tuesday.
- And while Goldman agrees that the current rally in value stocks could be "both strong and, perhaps, longer than average," they think the rotation is unlikely to be sustained into a major trend unless three things change.
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Wall Street's biggest firms are forecasting a shift away from market-dominating growth stocks and into their downtrodden peers
Growth stocks have significantly outperformed value stocks over the past decade, but that could change in the short term, according to notes from Goldman Sachs and Bank of America.
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Could the decade-long trend of growth stocks outperforming value stocks be in the process of reversing?
In the short term? Yes.
In the long term? Probably not.
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Goldman Sachs
That's according to analyst notes published on Tuesday from Goldman Sachs and Bank of America.
Over the past two weeks, many of the underperforming sectors during the COVID-19 sell-off started to recover and outperform their peers.
Industries like airlines, casinos, and cruise lines saw a significant jump in outperformance relative to sectors like healthcare and utilities.
"Historical experience suggests that this current rotation could continue in the short term," according to Goldman.
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BofA also sees signs that the rotation could continue:
"In 14 of the last 14 recessions, value has outperformed growth for at least 3 months when the economy showed signs of improving."
BofA noted that the valuation dispersion between growth and value stocks is close to all-time highs, suggesting that the rally in value stocks can continue.
But even though value has outperformed growth stocks over the past two weeks, that doesn't mean the trend will necessarily last because underlying long-term trends in the market haven't changed.
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"As with the previous examples of rotations since the financial crisis a decade ago, this rotation is unlikely to be sustained into a major trend in our view - unless growth, bond yields, and inflation expectations all rise in a more meaningful way," Goldman said.
The bank said it thinks that without a big shift in gross domestic product expectations, this current rotation will likely be temporary and eventually, investors will continue to reward companies with strong balance sheets and stable cash flows.
Goldman concluded that as long as growth is scarce, growth companies will prosper.
See Also:
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- MORGAN STANLEY: The market's hottest stocks are in danger of being disrupted to a degree not seen since the Great Recession. Here's how to adjust your portfolio for the coming shift.
- MORGAN STANLEY: Buy these 23 high-growth stocks that look poised to deliver market-beating returns over the long term
- The European Union's $826 billion stimulus plan to battle the coronavirus is 'too small and too late,' analysts say
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