Sector movers: Banks continue to find favour as investors eye exit from pandemic
Banks' shares continued to outperform Technology at the start of the week amid expectations for an exit from the Covid-19 pandemic, possibly as soon as in the next couple of months, as well as for increased fiscal stimulus spending in the US.
Notably, there was even some 'market chatter' to be heard of the US possibly reaching so-called 'herd immunity' against Covid-19 by as soon as during the following month, in April.
Lenders' shares thus continued to track longer-term US government bond yields higher, given their sensitivity to the global interest rate cycle.
Buoying yields on US Treasuries, at the weekend the US Senate approved the Biden administration's $1.9trn fiscal stimulus package and the House of Representatives was expected to follow suit the next day.
Technology stocks on the other hand continued to be drag, even if after having been heavily favoured throughout the pandemic.
In their case, higher bond yields act as a significant drag, lowering the present value of their expected future cash flows and making it costlier to access funding, or as Mike Wilson at Morgan Stanley put it at the weekend, by hitting their "nosebleed valuations".
Wilson also pointed out how in the US, heading into the second year of the pandemic, banks, energy and materials were set to replace tech and other high-growth stocks in the top quintile in terms of momentum.
Evidently, some of the same process was now underway too in the UK.
Wilson nonetheless added a caveat, at some point, tech was expected to rejoin the party.
"Finally, everything that's going on now should be expected at this stage of a recovery from recession. After the big initial surge, the stock market tends to consolidate as interest rates rise and P/Es compress.
"This is why our year-end target of 3900 for the S&P 500 is toward the lower end of most sell-side strategists. The bull market continues to be under the hood, with value and cyclicals leading the way.
"Growth stocks can rejoin the party once the valuation correction and repositioning is finished."
Other sectors which had acted as havens during the worst days of 2020 were also soft on Monday, including Leisure Goods and Food and Drug retailers.
Top performing sectors so far today
Aerospace and Defence 3,624.50 +3.83%
Banks 2,963.24 +3.77%
Construction & Materials 7,595.74 +3.53%
Mining 25,122.72 +2.99%
Media 8,140.13 +2.26%
Bottom performing sectors so far today
Leisure Goods 22,784.28 -6.31%
Technology Hardware & Equipment 1,861.38 -3.08%
Fixed Line Telecommunications 1,648.26 -2.63%
Food & Drug Retailers 4,107.86 -1.50%
Software & Computer Services 1,908.69 -0.75%