Stocks rose Wednesday as tech shares looked to make up some of their declines from earlier this week. The Nasdaq outperformed, adding more than 1.5% and steadying after the index dropped more than 1% in each of the previous two sessions.
Traders this week have so far embraced many of the stocks hardest-hit by the pandemic, including the airline, cruise line, lodging, restaurant and brick-and-mortar companies some analysts have called the “epicenter stocks.” Hopes that drug-makers were closing in on getting approval for a vaccine – and by extension, helping to stoke consumer confidence in getting out and traveling – helped catalyze the rally.
The jump, however, came at the expense of the growth and tech stocks that led the markets higher earlier on during the pandemic. The Nasdaq posted back-to-back sessions of declines greater than 1%, while the Dow brought its cumulative advance for the week-to-date to nearly 4%. In the S&P 500, the energy, financials and industrial sectors have far outperformed over the past two sessions, after lagging for the year-to-date.
“Overall I look at this as somewhat of a catch-up positioning from investors,” Michael Arone, State Street Global Advisors chief investment strategist, told Yahoo Finance. “Investors have gotten a lot more comfortable with the election outcome, with progress on COVID-19 solutions, and what again was a very solid earnings season. So I think they’re looking ahead to 2021 and anticipating, perhaps, much better-than-expected economic growth and earnings growth. And so they’re pivoting towards more cyclical, value companies and a bit away from the technology.”
“This recalibration, in my opinion, is healthy,” he added. “Remember we were all scratching our heads over how concentrated the market was, how it was just a handful of tech names. Now we’re seeing much greater breadth in this rally, and I think that’s healthy for the overall market.”
Other analysts shared this view, and a number of strategists this week upgraded their near-term expectations for the path forward in equity markets. Goldman Sachs equity strategists lifted their year-end S&P 500 price target to 3,700 from 3,600, and said they expected the S&P 500 to then climb to 4,300 by the end of 2021.