The so-called “great rotation” from growth stocks to value stocks is facing a major test this week as Big Tech companies report their earnings. Investors have been shifting their focus from high-flying tech stocks to more traditional value stocks in recent months, hoping to capitalize on a potential economic recovery and rising interest rates.
However, the tech sector, which has been a major driver of the stock market’s gains over the past year, is still expected to deliver strong earnings numbers. Companies like Apple, Amazon, Facebook, and Google parent Alphabet are all set to report their quarterly results this week, and analysts are forecasting robust earnings growth across the board.
This could pose a dilemma for investors who have been betting on a rotation out of tech stocks. On one hand, strong earnings from these companies could provide a boost to the overall market and push tech stocks even higher. On the other hand, if earnings disappoint or guidance is weaker than expected, it could fuel the rotation out of growth stocks and into value stocks.
The great rotation thesis is based on the idea that as the economy reopens and interest rates rise, investors will favor value stocks, which tend to perform better in a more traditional economic environment. Growth stocks, on the other hand, have benefited from low interest rates and the shift to remote work during the pandemic, but could face headwinds as the economy recovers.
So far, the rotation has been playing out in the market, with value stocks outperforming growth stocks in recent months. But the tech sector has been a notable exception, with many tech stocks continuing to hit new highs. This week’s earnings reports could provide further insight into whether the rotation is gaining momentum or if tech stocks will remain resilient.
Overall, the great rotation faces a big test with Big Tech earnings this week. Investors will be closely watching the results and guidance from these companies to see if the trend towards value stocks will continue or if tech stocks will once again steal the spotlight. Regardless of the outcome, it’s clear that the market is in a period of transition, and investors will need to stay nimble and adapt to changing conditions in order to navigate the current landscape.