At the height of the COVID-19 Pandemic during March/April 2020, it was reasonable to expect investors to turn to the large-cap growth sectors, namely the S&P 500 Technology sector and the S&P Healthcare sector, and specifically the Biotechnology industry. At that time, a technical study of the top 100 large-cap stocks ranked by SCTR scores showed two S&P 500 sectors dominated the top 100 SCTR list. Exactly half of the top 100 ranked large-cap names were Healthcare (30) and Technology (20) stocks. A deeper dive into the list shows investors' preference for large-cap Technology and Healthcare names. 5 of the top 10 SCTR ranked stocks were Technology, and 2 were Healthcare.
During the lock-down period, it is understandable why investors favor Technology names, especially the work-from-home and the sheltered-in-place themes. However, many other investors also sought out structural growth stories such as wireless 5G service, Cloud Computing, Artificial Intelligence, E-commerce, Big Data, etc. Another reason the Technology theme gained considerable traction is that long-biased money managers favored large-cap Techs due to the lack of visibility in other sectors.
As we fast forward to the summer months, a quick review of the top 100 large-cap names ranked by SCTR on 7/1/20 continues to show investors favoring Technology and Healthcare stocks. 26 Technology stocks and 22 Healthcare stocks occupied the top 100 SCTR list. Investors also started to venture into economically sensitive sectors such as the Consumer Discretionary sector (11 stocks in the top 100 list) and the Industrials sector (9 stocks). Improving relative strengths from the cyclical related industries hint at investors anticipating an economic recovery. Most interestingly, was the large-cap equities markets were broader-based than at any other time during the year. 7 Technology, 5 Healthcare, 4 Consumer Discretionary, and 4 Telecommunication Services stocks occupied the top 20 list.
In the most recent 11/23/20 SCTR study, the promise of COVID-19 vaccines receiving FDA approvals gave investors hope of a quick reopening and hence sustained economic recovery. Investors began to rotate aggressively into many of the previously battered reopening sectors and stocks. At the same time, investors shied away from many of the highly appreciated Technology-driven stay-at-home plays. The top 100 large-cap list ranked by SCTR reaffirms economically sensitive sectors dominating the top 100 list. For instance, the largest concentration of stocks came from the Consumer Discretionary sector (26 names), Industrials (21), Technology (16), and Financials (9). The barbell strategy investment approach of balancing a portfolio with stay-at-home stocks and economically sensitive recovery stocks began to gain traction.
One month later, and with only a few days before the end of the year, the current 12/29/20 SCTR study further reinforces the barbell strategy. The Consumer Discretionary sector is now the top S&P sectors with 27 names within the top 100 list. It is followed closely by the Technology sector with 21 and the Communication Services with 8. Financials, a value related sector, continue to improve over the past month or so with 15 names. The Industrials sector rounds out the list with 13 names. In total, 84 of the top 100 list ranked by SCTR came from the above 4 S&P sectors. A deeper dive into the list also shows investors moving toward concentrated positioning. For instance, within the Technology sector (21 names in the top 100 list), slightly more than half came from the Semiconductors sub-industry (11 stocks). Within the Consumer Discretionary sector (27 names) 3 Consumer Discretionary sub-industries dominate – the Apparel Retailers (4), Clothing Accessories (4), and Broadline Retailers (2). Within the Financial sector (15 stocks) 6 are Banks and 3 are Asset Managers and in the Industrials sector (13) are 3 Industrial Machinery names, 2 Diversified Industrials, and 2 Building Materials.
Nearly 7-9 months ago, everyone was buying FAANGs and technology-based stay-at-home stories. Growth stocks outperformed value stocks by the largest amount in decades in what appears to be the biggest dichotomy since the dot-com era of 1999-2000.
Today, the current rotation favors both the economically sensitive reopening stocks and the stay-at-home technology-driven names. Will this trend continue into the New Year when the COVID-19 vaccines become widely available to the masses and when the U.S. and the global economies reopen?
Enclosed below is an updated list of the top 100 large-cap stocks ranked by SCTR scores and a list of the top 100 ranked SCTR names by the different S&P sectors.