By Lewis Krauskopf

NEW YORK (Reuters) – A shakeup in stocks accelerated by the past week’s surge in Treasury yields has investors weighing how far a recent leadership rotation in the U.S. equity market can run, and its implications for the broader S&P 500 index.

Moves this week further spurred a shift that has seen months-long outperformance for energy, financial and other shares expected to benefit from an economic recovery, while a climb in Treasury yields weighed on the technology stocks that have led markets higher for years.

The two-track market left the benchmark S&P 500 down for the week, and sparked questions about whether it could sustain gains going forward if the tech and growth stocks that account for the biggest weights in the index struggle.

So far this year, the S&P 500, which gives more influence to stocks with larger market values, is up 1.5%, while a version of the index that weights stocks equally is up 5%.

“That just tells us the gains are less narrow, more companies are participating, and I think that’s healthy,” said James Ragan, director of wealth management research at D.A. Davidson.

The focus on market leadership comes as investors are weighing whether the S&P 500 is due for a significant pullback after a 70% run since March, with the rise in long-dormant yields the latest sign of trouble for equities as it means bonds are more serious investment competition. The yield on the 10-year U.S. Treasury note this week jumped to a one-year peak of 1.6% before pulling back.

Economic improvement will be in focus in the coming weeks, including the monthly U.S. jobs report due next Friday, as will the country’s ability to ensure widespread coronavirus vaccinations, especially as new variants emerge.

Tech and momentum stocks helped drive returns in 2020 “when everyone was locked down and all they had was their computer,” said Jack Ablin, chief investment officer at Cresset Capital Management. “Now it seems with the vaccines, the stimulus and the prospect of reopening that we are looking out toward a recovery phase.”

The shift in the market this week is building on one that was fueled in early November, when Pfizer’s breakthrough COVID-19 vaccine news generated broad bets on an economic rebound in 2021.

Among the moves since that point: the S&P 500 financial and energy sectors are up 29% and 65%, respectively, against a nearly 9% rise for the benchmark index and 7% rise for the tech sector. The Russell 1000 value index has gained 16.5% against a 4.3% climb for its growth counterpart, while the smallcap Russell 2000 is up 34%.

“You definitely are seeing the reopening trade that has pretty much come alive here,” said Gary Bradshaw, portfolio manager of Hodges Capital Management.

Despite the gains, there remains “plenty of room for the reflation trade to run from a valuation perspective,” Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, said in a report this week. RBC is “overweight” the financials, materials and energy sectors.

Rising rates tend to be favorable for more cyclical sectors, David Lefkowitz, head of Americas equities at UBS Global Wealth Management, said in a note, with financials, energy, industrials and materials showing the strongest positive correlations among sectors with 10-year Treasury yields.

Still, how long the market’s reopening trade lasts remains to be seen. Investors may be reluctant to stray from tech and growth stocks, especially with many of the companies expected to put up strong profits for years.

Any setbacks with the economy or with efforts to quell the coronavirus could revive the stay-at-home stocks that thrived for most of 2020.

And with a GameStop-fueled retail-trading frenzy taking hold this year, banks and other stocks in the reopening trade may fail to draw the same attention from amateur investors as stocks such as Tesla, said Rick Meckler, partner at Cherry Lane Investments.

“There isn’t the pizzazz to those stocks,” Meckler said. “There rarely is a potential for stocks to make the kind of moves that big tech growth stocks have made.”

(Reporting by Lewis Krauskopf; editing by Richard Pullin)