The market’s ‘Great Rotation’ may catch out investors

Heightened noise surrounding the rotation from growth to value stocks on positive vaccine news is misguided and could catch-out investors.

A number of key breakthroughs in the fight against coronavirus is leading to an unprecedented rotation in stocks, a counter movement by traders from one equity class or sector into another.

A higher degree of optimism fuelled by progress towards the roll-out of a Covid-19 vaccine has led many investors across the globe to move away from several of this year’s high-flying stocks, and opt for those left beleaguered by coronavirus.

In recent days we’ve seen a momentous, extreme rotation from growth to momentum stocks, such as stay-at-home tech, to value funds, including financials and industrials, following the upbeat vaccine news.

Hopes for a potential Covid-19 vaccine are genuine and the developments are, undoubtedly, highly positive news for humanity.

Nevertheless, the Great Rotation could be misguided, and investors could be caught out.

They could look ahead to the post-pandemic era with an economy that’s free of the virus. However, the world, global economy, how we live and do business has profoundly changed.

It’s most unlikely that things will return to exactly how they were before the coronavirus crisis, and there are several aspects of the so-called ‘new normal’ that people champion. As a result, these major shifts in trend will unlikely be reversed.

Just one example is working from home. Even if just 20% of office staff return to the office on a full-time basis, the change in working patterns is immense.

Other such examples are videoconferencing superseding business travel, and the rise and rise of online retail. Consumers have fallen in love with online shopping, so will they just return to the stores? Then of course there’s the increased use of apps for everyday tasks including banking and even seeking medical advice, amongst many other things.

In a number of ways, Covid-19 has fast-tracked the burgeoning trend that existed before the pandemic, towards consumer convenience, for 24/7 access, and on-demand.

As such, dumping stocks that support these key shifts in society and the economy in favour of so-called recovery stocks could easily catch investors off-guard.

In addition, the roll-out of mass global vaccine programme will be a long-drawn-out process in terms of logistics and of course addressing the issue of the vaccine sceptics.

Consequently, the best way for investors to best-place themselves to take advantage of the opportunities and sidestep the risks is to have a wide spread of investments, and not attempt to second guess the market.

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