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FOMO Trading Driving The Rotation Towards Value Stocks

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The stock market is continuing its unprecedented rally with the S&P 500 surging past the 3,000-point benchmark and the Dow Jones Industrial topping 25,000 for the first time since the beginning of March. Secular growth stocks had driven the last two months of the markets rally with the pandemic providing well-positioned tech companies with a rare tailwind. Now, investors are beginning to rotate towards cyclical and value names, which have yet to break out from the market's initial crash.

Investors are starting to feel more optimistic about our economic condition as state economies begin opening, and another round of fiscal stimulus is in the works. As tech-heavy growth stocks appear to be running out of runway, the relatively cheap banks, airlines, and cruises lines are getting a boost with investors looking for somewhere to put their money to work.

Airline stocks like Delta (DAL - Free Report) , Southwest (LUV - Free Report) , United (UAL - Free Report) , and American (AAL - Free Report) are up 20%+ in the first few days of trading this week, following the long Memorial Day weekend as air travel begins to pick up. Banks stocks are also seeing a big boost with JP Morgan (JPM - Free Report) , Wells Fargo (WFC - Free Report) , and Bank of America (BAC - Free Report) up high single-digits this week in hopes of a swifter economic recovery. Cruise liners such as Carnival (CCL - Free Report) , Royal Caribbean (RCL - Free Report) , and Norwegian (NCLH) are all up double-digit percentages in the past 2 days on economic optimism, but should we buy into the hype?

The S&P 500 has run up 37.5% from its March 23rd lows and just over 10% off its all-time highs from February. This excessive run-up is not justified. The most economically exposed segments, as I mentioned above, may still retest their lows on a broader market pullback.

For more information check out my recent article: Investors Rotate To Value Stocks & The S&P 500 Battles At 3,000.

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