Credit: Shutterstock photoLast month's election of Donald Trump to the United States presidency wasn't only a political revolution. It's also triggered one of the most dramatic stock-market shifts in recent decades.
The iShares S&P 500 Value Fund (IVE) rose 6.3 percent in November, while the iShares S&P 500 Value Fund (IVW) gained just 1.2 percent. The 5.1 percentage-point differential was the widest divergence between the two portfolios since March 2001, as the dot-com bubble collapsed.
Investors have fueled the rotation by feverishly amassing financial companies such as Bank of America, industrials like Caterpillar, and energy names including Marathon Oil. They've made room in their portfolios by dumping large technology names such as Apple, Amazon.com, and Facebook.
Two major catalysts lay behind the move. First, Trump and a Republican-controlled Congress are expected to pass infrastructure bills, tax reforms and deregulation. That's boosted sentiment toward companies that benefit from accelerating gross domestic product. It's also reduced the appeal of secular-growth companies like FB or AMZN that expand their revenue independently of swings in the economic cycle.
Those hopes of quicker GDP gains have simultaneously lifted bond yields, creating a windfall for banks that benefit from borrowing at low short-term rates and lending at higher long-term rates. Traditional growth names such as FB or AMZN with high price/earnings ratios have suffered because higher interest rates typically drive investors toward stocks with lower multiples.
IVE vs IVW, 1-yr chart
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The moves were anticipated several months ago in OptionMonster's premium SPX Analysis notes and on our Market Action Pro webinar.
Economic data, including durable-goods orders, jobless claims and manufacturing indexes, have supported expectations for faster growth as well. That, in turn, has bolster transportation stocks such as airlines and railroads--other members of the "value" category.
The Organization of Petroleum Exporting Countries' decision to cut oil production for the first time since 2008 was another catalyst for Energy and railroads.
Steel makers, the top major group in the last month on our ResearchLab proprietary market scanner, also benefited from Trump's election because he's backed their dumping grievances against Chinese competitors.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
