Investors Are Falling Back in Love With Volatile Stocks

  • High-beta shares rallying with value stocks as banks advance
  • Goldman equity team says “room to run” for value shares

Trennert: New Lease on Life for Markets, Investors

U.S. stock investors reversed course in the final months of 2016. Now they’re facing the right direction, according to Goldman Sachs Group Inc.

Since Donald Trump won the presidency on Nov. 8, the $1 trillion rally in equities has been especially generous to the most volatile companies, ones that were shunned in the first half of 2016. Shares that exhibited wider swings than the S&P 500 Index in the past year -- mostly energy and financial stocks -- are up 14 percent since the election, almost three times the benchmark gauge, according to a PowerShares High Beta exchange-traded fund.

Energy producers and banks, each up at least 10 percent since Nov. 8, make up 60 percent of the ETF. Ironically, they’re also the most widely represented industries in another popular strategy since the election -- value investing.

The iShares S&P 500 Value ETF, up 8.2 percent since the election, is 39 percent financial and energy shares, according to data compiled by Bloomberg.

“Our call to buy value has paid off aided by reflationary expectations tied to the new administration,” wrote Goldman researchers led by Robert Boroujerdi, head of global securities research. “We believe the rotation into value has room to run.”

The call doesn’t come without caveats. Valuation in the group is “stretched,” the analysts write, and contingent on climbing Treasury yields. The 10-year note yield is up 61 basis points since the election.

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