Market snapshot: value and inflation are increasingly popular themes
There's been a switch away from some tech stocks to shares which will benefit from a return to normality.
22nd February 2021 08:32
by Richard Hunter from interactive investor
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There's been a switch away from some tech stocks to shares which will benefit from a return to normality.
Investor attention is showing signs of switching to value stocks and inflation as the likelihood of economic recovery edges nearer.
The proposed stimulus package in the US, accelerating vaccine rollouts and surging commodity prices each contribute to the anticipation of economic relief.
In the US, there has been a small but noticeable rotation out of strong growth stocks such as tech into those which would be immediate beneficiaries of any return to normality. The industrial and material sectors in particular are pricing in strengthening demand as cyclical shares begin to show signs of coming back into fashion.
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With commodity prices continuing to rise and with an oil price now up 23% this year, helped by freezing conditions in the US and crimped supply, thoughts are also turning slowly to the possibility of inflation becoming a factor later in the year.
US indices have produced a healthy return thus far in 2021, with the Dow Jones currently ahead by 2.9%, the S&P500 by 4% and the Nasdaq still showing gains of 7.7%, despite some profit-taking as the rotation gathers pace.
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The UK market has also shown some encouraging signs despite the recently weak retail sales data and indeed sterling strength, which puts immediate pressure on the overseas earners who make up a large percentage of FTSE 100 stocks.
The meaningful oil and commodity sectors within the premier index have inevitably been boosted by the surge in prices, while the UK’s vaccine programme seems ahead of the curve on the global stage, prompting hopes of an early release of pent-up demand from consumers as restrictions ease.
The FTSE 100 has not held on to the strong gains seen on a couple of occasions so far this year, but nonetheless remains ahead by 2% in the year to date. Inflation will become the subject of increasing focus in the weeks to come and, in the meantime, the announcement of the UK’s planned roadmap to exit pandemic restrictions will also weigh on sentiment one way or the other in the short term.
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