Market snapshot: renewed interest in growth stocks

The rotation from value to growth has reversed resulting in a strong showing from big tech stocks.

Steadying inflation concerns have opened the door for renewed buying interest in growth stocks.

While the relief may be temporary, the previous rotation from value to growth has reversed. This resulted in a strong showing from big technology stocks which helped lift the S&P 500, where the influence of the tech sector is significant, to another record closing high. Inevitably the Nasdaq index was also back in favour, with the likes of Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL) clocking positive gains.

More broadly, an unexpected spike in jobless claims in the US implied that the economic recovery has not yet fully taken hold. Indeed, comments from the Federal Reserve chairman cautioned that labour market scarring was very possible post-pandemic. Much of this was due to the fact that many companies have accelerated their digital and online transformation programmes during the lockdowns, which will in turn reduce the number of jobs available as the technology savings kick in. In that event, there would be a wide need for workers to retrain, and as such the US would not be returning to the same economy of a year ago as a result.

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The imminent first quarter reporting season should add more colour to how companies are actually faring on the ground, while outlook comments will be scrutinised for further views on the economic rebound.

More positively, the Fed remains determined to continue with its accommodative policies until such time as the picture clears and the expected bounce in economic fortunes gains traction.

Against this positive backdrop, the main indices continued their ascent and in the year to date, the Dow Jones has now added 9.5%, the S&P500 9% and the Nasdaq 7.3%.

Despite evidence of a reversal of the rotation trade which has applied some pressure on dominant sectors such as the banks, oils and miners, the FTSE 100 has held firm and remains ahead by 7.5% in the year to date.

The ongoing success of the vaccination roll-out programme, the insurance of global stimulus and an increasingly evident thawing of sentiment towards the UK as an investment destination are all providing meaningful support. Meanwhile, the release of pent-up economic demand in the months to come should provide another positive catalyst.