Investors bet bounce in value stocks will stick

Value stocks sport lower price-to-earnings valuations

As the U.S. economy begins to emerge from the sharp slowdown during the coronavirus pandemic, some fund managers have been drawn to value stocks, a sector that underperformed during the recent rally. Value stocks, which typically sport lower price-to-earnings valuations, tended to underperform growth stocks during the bull market that ran for more than a decade and ended this year.

That pattern has recently reasserted itself: The S&P 500 Value index was up just 4.5% over the last month compared to a 5% gain in the S&P 500 Growth index.

Yet better-than-expected readings on U.S. employment and other indicators have money managers thinking about lightening up on the stocks driving the rally in favor of sectors such as financials and energy. A sustained bounce in these economically sensitive areas could be an encouraging signal for the nascent recovery, investors said.

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