Lockdown Leadership Unlikely To Last

Key Points

  • In the last few weeks, stock market leadership reversed back to lockdown-era defensives as the stock market made new all-time highs.

  • The defensive turn by investors may be prompted by the rapidly spreading Delta variant of COVID-19.

  • This year’s swings between cyclicals and defensives, value and growth, and international and U.S. stocks exemplify the importance of holding a diversified portfolio to help reduce overall portfolio volatility.

In what seems like a return to the market of a year ago, the last few weeks have seen defensive stocks outperform more economically sensitive stocks, like internet retailing stocks leading airline stocks, growth stocks leading value stocks and U.S. stocks leading international stocks. Surprisingly, this leadership rotation in the stock market back to lockdown-era defensives has coincided with new all-time highs. Let’s examine the potential causes of this rotation and if it will last or if cyclical stocks might make a comeback in the second half of the year.

Airlines versus internet retailers year-to-date performance

Source: Charles Schwab. Bloomberg data as of 7/2/2021. Indexes are unmanaged, do not incur management fees, costs and expenses, and cannot be invested in directly. Past Performance is no guarantee of future results.