Investors earlier this year overweighted their portfolios into “reopening” cyclical stocks trading at bargain valuations, such as financials and energy plays, and away from pricey growth stocks, such as Big Tech. But now, investors are turning again to familiar large-cap growth names, especially in the tech sector.

The market rotation has made a U-turn. (In my native New England, we call it: bangin’ a you-ee.)

Below, I explain this market dynamic. I also steer you toward a growth opportunity that’s poised to beat the market into the foreseeable future.

Choppiness ahead…

Goldman Sachs (NYSE: GS) recently raised its 2021 price target for the S&P 500 to 4,700 from 4,300, implying a 25% rise for the full year. As of this writing Thursday morning before the opening bell, the S&P 500 sat at 4,514.07.

On the way to that Goldman Sachs target, we’re likely to see increased volatility. On Wednesday, the Dow Jones Industrial Average fell 68.93 points (-0.20%), the S&P 500 fell 5.96 points (-0.13%), and the tech-heavy NASDAQ fell 87.69 points (-0.57%). The yield on the benchmark 10-year Treasury note fell 3 basis points to 1.344%, as investors fled to safe havens amid troubling economic data. Bond prices and yields are inversely related.

The U.S. Labor Department on Wednesday released its Job Openings and Labor Turnover Survey (JOLTS), which showed job openings rose to a record 10.9 million in July. American workers continue to weigh their employment options. In pre-market futures contracts Thursday, U.S. stocks were trading lower as economic anxiety persisted.

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Wall Street is beginning to harbor doubts about the resiliency of the economy’s expansion, but paradoxically, large growth stocks have benefited. At the start of the year, value stocks were supplanting growth stocks, as investors grew wary of the elevated valuations of household-name growth stalwarts.

However, as the COVID Delta variant emerged and Wall Street got skittish, investors in midsummer started to pile back into growth-oriented “story stocks,” particularly mega-cap Silicon Valley darlings. We’ve gone from growth to value and…back to growth.

The iShares S&P 500 Growth ETF (IVW), the iShares S&P 500 Value ETF (IVE), and the SPDR S&P 500 ETF Trust (SPY) have generated year-to-date daily total returns of 20.20%, 19.47%, and 21.64%, respectively.

Over the past three months, the returns for IVW, IVE, and SPY have been 8.64%, 2.01%, and 8.36%, respectively (all figures as of market close September 8).

Higher expectations…

Overall, the stock market probably has sufficient fuel to keep rising this year, largely thanks to corporate earnings that continue to post robust growth.

For S&P 500 companies in Q3 2021, analysts are projecting earnings per share (EPS) growth of 28.1% and revenue growth of 14.8%. For Q4 2021, analysts are projecting EPS growth of 21.6% and revenue growth of 11.3%. For calendar year 2021, analysts are projecting EPS growth of 42.6% and revenue growth of 14.8%.

During the first two months of Q3, analysts boosted EPS projections for S&P 500 companies for the quarter.

The Q3 bottom-up EPS estimate rose by 3.8% (to $49.31 from $47.50) during this period. “Bottom up” is an aggregation of the median EPS estimates for Q3 for all the companies in the index.

The following chart puts rising Q3 growth projections into historical context (data as of September 3, from research firm FactSet):

Analysts typically reduce earnings estimates during the first two months of any given quarter. During the past five years (20 quarters), the average decline in the bottom-up EPS estimate during the first two months of a quarter has been 2.4%.

This time around is decidedly different, as companies defy the headwinds of the pandemic. The third quarter marked the fourth-largest increase in the bottom-up EPS estimate during the first two months of a quarter since 2009. It also marked the fifth straight quarter in which the bottom-up EPS estimate increased during the first two months of the quarter.

Eight sectors recorded an increase in their bottom-up EPS estimate for Q3 during the first two months of the quarter, led by the energy (+21.1%) and materials (+12.1%) sectors. Three sectors posted a decline in their bottom-up estimate for Q3, led by consumer discretionary (-3.9%).

As the bottom-up EPS estimate for the index increased during the first two months of the quarter, the value of the S&P 500 also increased during this same period. From June 30 through August 31, the value of the index increased by 5.2% (to 4,522.68 from 4,297.50).

But maybe you’re looking for even better gains. We’ve found a growth stock that will not only beat the S&P 500 but crush it.

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John Persinos is the editorial director of Investing Daily. Send your questions or comments to mailbag@investingdaily.com. To subscribe to John’s video channel, click here.