Stock

: Two days usually are not a pattern, say strategists. Right here's what they are saying about tech shares and the rotation in worth.

In this file photo dated August 8, 2020, a nurse shows a COVID-19 coronavirus vaccine manufactured by the Chinese company Sinovac Biotech at the São Lucas Hospital in Porto Alegre, southern Brazil.

silvio avila / Agence France-Presse / Getty Images

The election campaign was interrupted by the COVID-19 vaccine rotation.

Sectors like energy have been hard hit for two days
SP500.10,
+ 2.52%
and finance
SP500.40,
+ 0.72%
are booming following news from a study that the vaccine is being developed by drug maker Pfizer
PFE,
-1.32%
and his partner BioNTech
BNTX,
+ 7.59%
was 90% effective. For the past week, the S&P 500
SPX,
-0.14%
is up 15% and financials are up 9%.

Chao Ma, global portfolio and investment strategist at the Wells Fargo Investment Institute, said a possible vaccine will widen market participation, particularly to hit sectors like travel and leisure. But Ma advised keeping a diversified portfolio, even in the suddenly out of shape information technology sector. "In the long term, however, we expect certain worldly trends, including the virtual experience economy and supply chain reshoring, to continue to drive the stock market," Ma said.

Inigo Fraser Jenkins, co-head of the portfolio strategy team at Bernstein Research, said the Pfizer news that came during the European trading session scuttled stocks like "tracks in a cloud chamber from particles scattered in an accelerator." However, Fraser Jenkins is not convinced of the durability of this move.

“For a medium-term allocation, other macro forces are of great importance. For example, we believe that real returns will remain low, there will likely still be a cycle in credit and bankruptcies, and despite antitrust battles for tech companies, there is still a generally longer growth period for high growth companies, ”he said. A measure of the real returns on inflation-linked 10-year Treasury bills rose from -0.87% last week to -0.78% on Tuesday.

In order for financial stocks to continue to recover, the yield curve has to steepen, which he does not expect.

"In addition, we continue to believe that some form of credit and bankruptcy cycle is yet to happen," he said. For value investors, he prefers core cycles such as industrials when inflation hits. "Owning a broader group of value stocks in the traditional sense is more of a trade that will benefit from short tactical jumps but may find it more difficult to find sustainable levels," he said.

Citi's global strategy team similarly said, “We would prefer energy if oil prices rise
CL.1,
+ 2.73%
and break evens (inflation expectations in the bond markets) will help. Financials also look cheap, but the scope for further increases in nominal bond yields (which affect relative performance) should be limited by further QE, ”the team said. QE refers to quantitative easing when central banks buy government bonds and other forms of debt.

On Tuesday the S&P 500
SPX,
-0.14%
ended 0.1% and the tech-heavy Nasdaq Composite
COMP,
-1.36%
lost 1.4%.

Related Articles