November 16, 2020
The market response to the MRNA data will be less violent than last Monday given elevated expectations, but value sectors should see, at least a few days of outperformance. After a few days, investor attention will again be split between vaccination anticipation and what could be a deep-dark winter for infections and hospitalizations. Some near-term consolidation is also expected given the magnitude of the move, but we expect the theme to re-emerge thereafter. Investor skepticism is understandable given the short-term nature of recent (past ~3 years) value sector outperformance. From an historical perspective, the strong outperformance of growth (Tech) vs value began in 2007 when a prolonged disinflation followed the global financial crises, China’s decision to reduce leverage ~2 years later, the trade wars ~10 years later and capped off by a global pandemic. Massive global monetary stimulus was used to offset trade pressures and rising global manufacturing PMIs this time last year reflected growing expectations for a US-China phase-one trade agreement. The value/growth ratio was rapidly narrowing until COVID-19 hit in January. The pandemic-induced work-from-anywhere technology adoption this spring and summer probably front-loaded 2-3 quarters worth of growth that will take time to digest. And the stage is now set for a similar period of value sector outperformance.