Investors Pile Into Stocks That Win in a Full Economic Recovery

Signs are multiplying in the stock market that investors see the recovery from the coronavirus taking hold.

Rising optimism in the economy is popping up everywhere, with shares of banks and energy companies and small firms soaring. At the same time, previous market winners that stood to benefit from stay-at-home measures are turning into laggards. Cruise lines soared, while Peloton and Zoom Video have started lagging behind. The small-cap Russell 2000 surged 3.1% Wednesday, while tech-heavy Nasdaq indexes needed a late-session rally to close in the green.

Behind it all is a belief that as states and countries reopen and the coronavirus curve slowly flattens, investors are free to position for a monumental shift. Nowhere was that more visible than in price action of walloped industries like airlines and cruise operators. Carnival Corp. and United Airlines Inc., both up more than 12% Tuesday, again gained near 4% or more.

“If people believe the economy is starting to bottom out, they are starting to look at those more cyclical areas,” Wayne Wicker, chief investment officer of Vantagepoint Investment Advisers, said by phone. “The biggest catalyst for that is the opening of some of these economies that are giving encouragement that America is going to go back to work.”

Long/short value portfolio has best 2-day streak since at least 2002

A Dow Jones market neutral index of value stocks that goes long the cheapest stocks and shorts growth shares notched its best day in at least 18 years Tuesday, while styles including momentum stumbled. The sharp rotation was on display again Wednesday, and is raising hopes for a turn in the 10-year trouncing the buy-low philosophy has endured.

The Russell 1000 Value Index rose 2.1% Wednesday, beating its growth counterpart by 1.5 percentage points. The divergence was evident at the stock benchmark level too, the Dow Jones Industrial Average up 2.2% while the tech-heavy Nasdaq rose just 0.6%.