As the world cheered the announcement of 2 promising COVID-19 vaccines, a predictable shift occurred on the ASX and global share markets.
Technology shares – which broadly rocketed higher as the world locked down and people shifted to working, shopping and socialising from home – began to fall out of favour this past week.
Meanwhile, many value shares that remained beaten down by uncertainties over the coronavirus pandemic began to draw renewed investor interest.
The tech-heavy Nasdaq Composite (INDEXNASDAQ: .IXIC), for example, has soared 30.9% higher so far in 2020. However, since the closing bell on Friday 6 November and the first vaccine announcement, the Nasdaq has gained a meagre 0.04%.
Compare that to the small-cap Russell 2000 Index (INDEXRUSSELL: RUT). Year-to-date, the Russell 2000 is up 7.5%. But at market closing on 6 November it was still down 1.4% for the year. Since the first vaccine announcement the index has rallied 9.0% higher.
You'll find the same story playing out here in Australia.
The S&P/ASX 200 Index (ASX: XJO), for example, is up 5.4% since 6 November.
As for the S&P/ASX All Technology Index (ASX: XTX), which contains 50 of Australia's leading and emerging technology companies? It's down 0.4%.
Christopher Grisanti, chief equity strategist at MAI Capital Management explains (as quoted by Bloomberg):
It's the same trend we've been seeing over the past several weeks which is a move toward value, toward companies that will rebound when COVID goes away. We have facts on the ground which can truly change the environment in a three- to six-month period.
New habits die hard too
If you're day trading, then best of luck trying to time the ups and downs of value versus growth shares. Unless you have a system the rest of us don't know of, you'll need all the luck you can get.
For long term investors, don't rush to sell the technology shares that were basking in the limelight less than 2 weeks ago.
As Macquarie wrote (from the AFR):
Predictably, investors are starting to assess relative winners and losers, and given that some of the impacted sectors are still 20 per cent to 30 per cent below pre-COVID levels, there is a strong temptation to buy losers and sell winners. Indeed, such rotation makes sense in the context of short-term trading.
If you're investing with long-term horizon, however, Macquarie adds:
Despite everything looking brighter, the basic dynamics of declining returns on humans and conventional tangible capital are still in place, and indeed have been accentuated by COVID.
In other words, as technology continues to race forward at warp speed, well-run tech-oriented companies should continue to broadly outperform labour and capital intensive business models.
Nick Griffin, fund manager of Munro Partners, echoes that view:
Over the medium term, our view is that lockdowns have pulled forward demand in areas such as e-commerce, cloud computing and internet disruption and the new habits formed during the crisis are unlikely to reverse once the crisis is over.
Businesses are not going to stop doing meetings virtually, consumers are not going to stop purchasing online, and so forth. Consequently, these societal shifts will continue long after the crisis is over.
E-commerce to keep on growing
A huge growth trend since the onset of the pandemic is the rapid rise in e-commerce. And despite the past week's pullbacks, this trend looks like it will only keep on growing over the longer-term.
My own rather traditional family has gotten on board as well. We've largely switched to click-and-collect from Woolworths Group Ltd (ASX: WOW) and have ordered more from Amazon.com.au over the past few months than we'd previously done in years.
At first, setting up your accounts and shopping lists can be a bit tedious. But it quickly gets easier… and habit forming.
In the US, Bloomberg reports:
Tyson Foods Inc.'s CEO on Monday highlighted "stickiness in click-and-collect and click-and-deliver", while executives at Chinese online giant JD.com Inc. said this week the shift toward online shopping is here to stay.
"We're convinced that most of the behavior change will persist beyond the pandemic," Walmart Chief Executive Officer Doug McMillon said on an investor call….
"The US consumer is in the middle of the largest shift in shopping behavior in the last 50 years, as convenience and safety increases in importance and e-commerce grows more rapidly than ever," Hilding Anderson, head of retail strategy in North America at consultant Publicis Sapient, said in an email.
This is the same 'shop from the convenience of your home' trend that's seen Australian online retailer Kogan.com Ltd's (ASX: KGN) share price rocket 154% higher this year. And that's after losing 16% since 6 November following the first vaccine announcement.
Kogan's potential to deliver strong share price gains won't come as news to long time members of Scott Phillips' Share Advisor service.
Scott first recommended Kogan to his Motley Fool readers way back on 28 September 2017. He cited the fact that the company was built for the online marketplace, had extremely low costs and a strong founder-led business among reasons he liked the stock.
Since Scott's initial recommendation, the Kogan share price is up 428%.
And, in case you're wondering, he's still got it listed as a 'buy' in Share Advisor.
