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July 20, 2020, 9:51 a.m. EDT

Is the ‘great rotation’ in the stock market under way as coronavirus cases surge? Or is it a false dawn? Here’s what experts think

The S&P 500 just enjoyed its greatest weekly outperformance against the tech-heavy Nasdaq Composite in four years

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By Mark DeCambre and William Watts, MarketWatch


AFP/Getty Images
The great rotation for stocks?

The tyranny of the behemoth technology stocks, which has supported the overall U.S. equities market since March, took a pause this week.

For months, the most highly valued, technology and e-commerce companies have marshaled a nearly unceasing rally during a public-health crisis that has exacted tremendous pain on the domestic and global economy.

However, the conclusion of last week’s trade on Friday highlighted some softness in the uptrend for megacapitalization tech names, raising questions about whether a rotation from out of those highflying leaders and into less-loved, economically sensitive sectors, like manufacturers, energy companies, financials and industrials, is afoot.

Among the group considered at the vanguard of the tech-rally, Facebook /zigman2/quotes/205064656/composite FB +0.90% , Amazon.com /zigman2/quotes/210331248/composite AMZN +0.30% , Apple /zigman2/quotes/202934861/composite AAPL +1.79% , Netflix /zigman2/quotes/202353025/composite NFLX +0.35% , Google-parent Alphabe t /zigman2/quotes/205453964/composite GOOG +1.02% /zigman2/quotes/202490156/composite GOOGL +1.31%  and Microsoft /zigman2/quotes/207732364/composite MSFT +1.69% , only the iPhone maker finished the week in positive territory.

Meanwhile, Netflix was the worst performer among that cohort, off 10.2%, notching its worst weekly skid in a year; and Amazon’s 7.4% decline was its worst weekly drop since the period ended Dec. 28, according to FactSet data.

As a result, the blue-chip Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.29% , consisting of 30 companies with only four considered traditionally tech in nature, outperformed the Nasdaq by 3.36 percentage points last week, up 2.29% vs. the technology-laden Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +0.72%  1.08% weekly decline. That marked the 124-year old benchmark’s biggest weekly outperformance against the tech-heavy benchmark since June 5, according to Dow Jones Market Data.

And the broader-market S&P 500 index /zigman2/quotes/210599714/realtime SPX +1.22%  produced a weekly gain of 1.25% that was 2.32 percentage points better than the Nasdaq, representing the S&P’s largest outperformance since the week ended Feb. 5, 2016.

On top of that, small-capitalization stocks, considered more sensitive to the health of the economy, reflected in the Russell 2000 index /zigman2/quotes/210598147/delayed RUT +1.68% , gained 3.6% for the week.

Drilling deeper, value-style investing, which has underperformed growth for years is flirting with a comeback of sorts, with the Russell 2000 index’s value index /zigman2/quotes/210598132/delayed XX:RUJ +2.34% , which tracks small companies that are undervalued by some metric, gaining 4.3% for the week. Meanwhile its comparable growth index /zigman2/quotes/210598133/delayed XX:RUO +0.93% , which follows the performance of companies that have a tendency to consistently grow earnings, rising a less-stellar 2.9%.

Similarly, an exchange-traded fund tracking the S&P 500’s value index, the SPDR Portfolio S&P 500 Value ETF /zigman2/quotes/203509323/composite SPYV +1.35% , finished the week up 3.4%, versus a 0.2% decline for its comparable growth ETF, the SPDR Portfolio S&P 500 Growth ETF /zigman2/quotes/205259648/composite SPYG +1.03% .

Beaten-down financials registered a 2.1% advance for their best weekly rally since the week ended Jun 5, as measured by the Financial Select Sector SPDR ETF /zigman2/quotes/209660484/composite XLF +1.61% ; while industrials /zigman2/quotes/202026558/composite XLI +1.87%  soared 5.9% for the week, also marking their best weekly gains since early June.

But was this a bona fide rotation into those categories and styles that many strategists view as necessary to propel the market to new heights? Or is it another head fake?

Quincy Krosby, chief market strategist at Prudential, told MarketWatch in an interview that it isn’t clear whether tech’s setback over the past week was outright profit-taking in the wake of a long run of gains, or rotation in which investors sell tech and use the proceeds to buy assets in areas that they believe may have more room to run.

This isn’t the first time the markets have seen glimmers of rotation out of tech and growth names, only to be left disappointed. Bargain hunters back in late May scooped up battered stocks on the back of optimism around progress toward a coronavirus vaccine. But the moves since then have come in fits and starts, with the S&P 500 and Dow pinned around their most recent peaks in June, while the Nasdaq has notched 27 record closing highs in 2020.

The market’s rally up to this point has been supported by companies that have been considered more resilient to the uncertain, socially-distant, outlook that the COVID-19 public-health crisis poses. In that way, tech companies like videoconferencing company Zoom Video Communications /zigman2/quotes/211319643/composite ZM +0.16% , which is up 262% so far this year, and the aforementioned tech behemoths are viewed as defensive plays.

/zigman2/quotes/205064656/composite
US : U.S.: Nasdaq
$ 305.26
+2.71 +0.90%
Volume: 18.06M
May 13, 2021 4:00p
P/E Ratio
26.11
Dividend Yield
N/A
Market Cap
$857.87 billion
Rev. per Employee
$1.47M
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/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 3,161.47
+9.53 +0.30%
Volume: 3.35M
May 13, 2021 4:00p
P/E Ratio
60.16
Dividend Yield
N/A
Market Cap
$1589.60 billion
Rev. per Employee
$297,430
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/zigman2/quotes/202934861/composite
US : U.S.: Nasdaq
$ 124.97
+2.20 +1.79%
Volume: 105.69M
May 13, 2021 4:00p
P/E Ratio
28.04
Dividend Yield
0.70%
Market Cap
$2048.74 billion
Rev. per Employee
$1.86M
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/zigman2/quotes/202353025/composite
US : U.S.: Nasdaq
$ 486.66
+1.68 +0.35%
Volume: 2.71M
May 13, 2021 4:00p
P/E Ratio
58.92
Dividend Yield
N/A
Market Cap
$215.04 billion
Rev. per Employee
$2.66M
loading...
/zigman2/quotes/205453964/composite
US : U.S.: Nasdaq
$ 2,261.97
+22.89 +1.02%
Volume: 1.33M
May 13, 2021 4:00p
P/E Ratio
30.12
Dividend Yield
N/A
Market Cap
$1487.09 billion
Rev. per Employee
$1.35M
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/zigman2/quotes/202490156/composite
US : U.S.: Nasdaq
$ 2,229.04
+28.79 +1.31%
Volume: 1.66M
May 13, 2021 4:00p
P/E Ratio
29.68
Dividend Yield
N/A
Market Cap
$1487.09 billion
Rev. per Employee
$1.35M
loading...
/zigman2/quotes/207732364/composite
US : U.S.: Nasdaq
$ 243.03
+4.03 +1.69%
Volume: 29.58M
May 13, 2021 4:00p
P/E Ratio
33.07
Dividend Yield
0.92%
Market Cap
$1800.05 billion
Rev. per Employee
$877,393
loading...
/zigman2/quotes/210598065/realtime
US : Dow Jones Global
34,021.45
+433.79 +1.29%
Volume: 352.81M
May 13, 2021 5:03p
loading...
/zigman2/quotes/210598365/realtime
US : Nasdaq
13,124.99
+93.31 +0.72%
Volume: 4.18M
May 13, 2021 5:16p
loading...
/zigman2/quotes/210599714/realtime
US : S&P US
4,112.50
+49.46 +1.22%
Volume: 2.16B
May 13, 2021 5:03p
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/zigman2/quotes/210598147/delayed
US : US Composite
2,170.95
+35.81 +1.68%
Volume: 1.88M
May 13, 2021 4:30p
loading...
/zigman2/quotes/210598132/delayed
XX : US Composite
2,416.08
+55.33 +2.34%
Volume: 1.43M
May 13, 2021 4:30p
loading...
/zigman2/quotes/210598133/delayed
XX : US Composite
1,431.08
+13.12 +0.93%
Volume: 850,390
May 13, 2021 4:30p
loading...
/zigman2/quotes/203509323/composite
US : U.S.: NYSE Arca
$ 39.72
+0.53 +1.35%
Volume: 5.69M
May 13, 2021 4:00p
loading...
/zigman2/quotes/205259648/composite
US : U.S.: NYSE Arca
$ 57.76
+0.59 +1.03%
Volume: 2.11M
May 13, 2021 4:00p
loading...
/zigman2/quotes/209660484/composite
US : U.S.: NYSE Arca
$ 37.29
+0.59 +1.61%
Volume: 66.72M
May 13, 2021 4:00p
loading...
/zigman2/quotes/202026558/composite
US : U.S.: NYSE Arca
$ 103.30
+1.90 +1.87%
Volume: 16.43M
May 13, 2021 4:00p
loading...
/zigman2/quotes/211319643/composite
US : U.S.: Nasdaq
$ 290.16
+0.46 +0.16%
Volume: 4.60M
May 13, 2021 4:00p
P/E Ratio
129.19
Dividend Yield
N/A
Market Cap
$85.68 billion
Rev. per Employee
$599,586
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