The rotation out of highly-priced growth stocks and back into steadier blue chips looks set to continue, analysts say, as they caution that not all of the market's biggest companies are likely to rise.
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Blue chips have been at the forefront of the S&P/ASX200's rebound over the past weeks, following about 18 months of underperformance, while mid-cap growth stocks have lagged and at times sold off viciously when company updates didn't live up to lofty expectations.
"Any company that has shown the potential for growth of earnings has seen fund managers and investors jump in happily paying up, pricing the stocks for perfection, drawing in mum and dad investors and leaving no margin for error should the company's outlook change in the slightest," said APP Securities private wealth adviser Matt Felsman.
Meanwhile, the biggest 20 stocks in the market have outperformed the broader ASX200 by about 2 percentage points since the beginning of October, and by about 1 percentage point since the US election. But the gains aren't across the board.
A steep rise in global bond yields as President-elect Donald Trump's big-spending plans fuel inflation expectations, has lifted insurers and banks with QBE rising nearly 20 per cent and NAB up more than 10 per cent in less than four weeks, while bond proxies such as Transurban or Scentre Group have fallen.
The big miners have also continued their rebound, but most of this year's gains in the sector were posted in the previous months as commodity prices rose, thanks to Chinese stimulus.
Macquarie expects large-cap outperformance to continue into 2017, as some of the concerns weighing on the stocks fade.
"Cyclical downside risks are falling and in combination with a rebound in the mining and potentially energy space, the relative argument for continued underperformance is no longer as strong," said Macquarie head of macro research Jason Todd.
The case for a rebound was smaller in sectors facing structural pressures such as increased competition or regulation, he added, pointing at staples (Woolworths, Wesfarmers), telcos (Telstra) and the big banks.
Citi head of equity market strategy Tony Brennan also cautioned that investors shouldn't expect a blue-chip outperformance across the board, with the investment bank seeing the best upside in resources and domestic cyclical stocks, while banks and food retailers looked less certain.
"Conditions still look mixed for these large sectors, with banks seemingly stuck with limited earnings growth, and the supermarkets still battling for market share," Mr Brennan said. "Only for the global industrials and insurers could a rising US dollar and bond yields potentially help."
Playing on these two themes, Citi has added Suncorp and Brambles to its recommended portfolio.
