Rotate into value? Not quite so fast...

Over the fast few months we have seen glimpses in which value has outperformed growth, but until the last few weeks these were 2-3 day phenomenons at best. However, since the S&P's high on September 2nd, value has outperformed growth, large-caps have underperformed small-caps and international equities - which have a greater exposure to cyclical sectors - have outperformed those in the US.

The outperformance of value vs growth in the last few weeks has many believing that the rotation will pick up the pace as the economy reopens and we enter the next stage of the cycle. But investors, now more than ever, should tread particularly carefully.

As if accelerating Covid cases in Europe and cases staying consistently above 30,000 in the US were not enough to worry about, equity investors are now having to contend with an election which now has the added complication of Ginsberg's replacement and various global banks this morning being accused of money laundering.

In terms of Covid, even if we don't see a lockdown in Europe or the US to the same extent as we did in March and April, numbers are rising in many major economies and not falling at the rate we had hoped in others. As we near the winter months this is not only a real headwind for countries trying to advance their reopenings - but an essential ingredient for many of the value names to outperform. Any sort of imposed lockdowns will most likely play into the hands of the stay-at-home and technology names once more. The value names at the end of the day, require confidence on the handling of the pandemic.

The death of US Supreme Court Justice Ruth Bader Ginsberg also adds to the problems for value to outperform. As the debate heats up as to whether a replacement will be appointed before the election, focus is taken away from passing through another economic package which the market is yearning for and one that without, will discourage investors to add risk to more economically sensitive stocks.

Add to this the news this morning that a plethora of banks in the US and Europe have been involved in money-laundering activities, leading bank stocks - which make up a large proportion of the value sector - to be pulled further into the red this year, and the case for outperformance in value becomes even harder to make.

There appears to be little seeming clear in the near future for Covid, the Fed, global banks or the Presidency. And if there is one thing markets do not like, it is uncertainty - and as this grows, the likelihood for equity investors to take a risk-off approach increases, and with it the likelihood that this chapter of value outperformance is over once more.