Renewed interest in growth stocks as inflation concerns steady

While the relief may be temporary, the previous rotation from value to growth has reversed.

Article updated: 9 April 2021 10:00am Author: Richard Hunter

This resulted in a strong showing from big technology stocks which helped lift the S&P500, 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 and Apple 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.

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 FTSE100 has held firm and remains ahead by 7.5% in the year to date.

The ongoing success of the vaccination rollout 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.

More from Richard Hunter: read more articles directly on the interactive investor website.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.

Richard Hunter

Head of Markets, interactive investor

Richard has over 30 years of stockmarket experience and is one of the UK’s foremost commentators on market matters and a regular contributor for the BBC (BBC News Channel, Wake Up to Money and the Today Programme), CNBC and Bloomberg. Richard’s expert commentary also appears across the national and specialist press. He previously held senior positions at Hargreaves Lansdown and NatWest Stockbrokers.

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