Wall Street underwent a great market shift this week.
After leading the market higher off the March lows, growth and tech stocks took a backseat to value stocks highly sensitive to economic activity. The IVW growth ETF is on track to close out the week 1% lower; the IVE value ETF on track to end 4% higher.
That shift is only just beginning with the economic recovery set to accelerate in 2021, according to Art Hogan, chief market strategist at National Securities.
"Economic growth is going to happen in 2021 as we start to get readouts on vaccines, as we start to inoculate the population, as we start feeling more comfortable doing those things we haven't done," Hogan told CNBC's "Trading Nation" on Thursday. "There's about $4 trillion in round numbers of pent-up demand for goods and services by consumers alone to actually manifest itself in 2021 when we actually start to feel more normal."
Investor hopes spiked earlier this week after Pfizer and BioNTech announced that their Covid vaccine was found to be more than 90% effective. That news triggered a rally in equities on optimism the U.S. might turn a corner in containing the pandemic, even as cases and hospitalizations across the country surged.
Corporations, too, could fuel that economic growth, Hogan said.
Money Report
"Cash on the balance sheets of corporations is at historic highs and I think that starts to express itself in buybacks and dividends and acquisitions and certainly capex and all those things like hiring new employees. I think if that's the case, this rotation we're just starting to see now into the cyclicals is going to be a trend that we have for a long time," he said.
Those dual forces — shifts in behavior from consumers and corporations — is likely to fuel "exponential growth" for the economy next year, he said.
"This is the beginning of this longer trend in 2021 where we actually see economically sensitive sectors do better, and if you needed to take three, I would say its financials, industrials and materials," said Hogan.
Financials look particularly attractive ahead of 2021, Hogan added – that group is highly correlated to a pickup in economic activity and higher yields. The 10-year U.S. Treasury yield closed in on 1% this week before falling back. Higher yields and a steeper yield curve boost banks' profitability.
