Dusted Off The Cobwebs

Dusted off the cobwebs.  Stocks blasted off yesterday in response to Pfizer’s announcement that its phase 3 vaccine trial was 90% effective.  Some cautious finality on the Presidential election added to the bullish sentiment that drove stocks up yesterday.

N O T E W O R T H Y

The great re-re-opening!  It was just a dream… everything is back to normal… at least that is what the markets signaled yesterday. Investors spent the latter half of last week pondering what a Biden Presidency with a Republican Senate might be like, and if the stock market is a gauge of that sentiment… they like it.  Still, there was no finality on that as traders headed home for the weekend. But as traders returned to their screens yesterday morning, though finality still eludes us, we were one step closer to knowing who the tenant of 1600 Pennsylvania Ave. will be for the next four years.  Regardless of political party, investors dislike uncertainty and the winner of the election is becoming… well, more certain.  Control of the Senate will most likely be determined by a Georgia runoff election in January and betting lines still favor Republicans, though the Dems have added a few points in the past few days.  SO, while we wait and see if President Trump can mount a credible legal challenge to the election results AND the Georgia runoff election, we can ponder the Pandemic… the re-surging pandemic… going into the holiday season… and the, so-called dark Winter months.  Yeah, that thing again.  Well, we got some news on that front yesterday as well.  Pfizer’s announcement that the vaccine they are developing with BioNTech was 90% effective became the spark that sent stocks in a steep, upward trajectory yesterday… but not all stocks, of course.  Let’s go to the S&P500 leader board, shall we.  In the top losers category, we had lockdown darlings Etsy, Clorox, Whirlpool, BestBuy, and Netflix down by -17.5%, -10.62%, -10.39%, -9.80%, and -8.59%, respectively.  They aren’t in the S&P500 but lockdown poster children Zoom Video and Peloton also took some heat, down -17.37% and -20.29% respectively. In the winner’s column, you may not be surprised to hear that Carnival topped the list, up by +39.29%, and it was accompanied by lockdown pariahs Valero Energy, Host Hotels & Resorts, Royal Caribbean, Wynn Resorts,  and United Airlines up by +31.20%, +30.09%, +28.79%, +27.69%, and +19.15%, respectively.  From a sector perspective, Energy topped the list, up by +14.13% while the bottom two spots were occupied by Information Technology (down by -0.73%) and Consumer Discretionary (down by -1.59%), dragged down by Internet Retailers.  So, yesterday was a classic re-opening trade punctuated by an exclamation point.  More evidence includes the small caps' significant outperformance.  The Russell 2000 Index added +3.70%, bettering the S&P500’s +1.17% vault.  Recall that small cap stocks typically outperform the broader markets in a healthy, expanding economy.  Finally, there is the bond market which saw longer maturity treasuries get clobbered.  The 10-year note yield jumped to 0.92% from 0.81% while the 30-year bond closed out yesterday’s session at 1.70%.  The rises in yields reflect bond investors' expectation of better economic conditions and inflation.   The moves caused the 3-month / 30-year yield curve to steepen by +11 basis points.   Banks, which perform better with a steeper yield curve, applauded yesterday’s move with the Banking sub-sector adding +11.09%.  Wow, that was a lot of numbers, but I wanted to illustrate just how extreme yesterday’s move was in signaling a recovery. Before you turn the keys to the toy room back over to the kids and pack up your makeshift home office, you must remember that the market is finding its way in what is still a regime of uncertainty.  In finding its ways, markets often swing wildly in both directions until certainty is actually achieved.  Now is a time to stay focused on your long term core strategy.

THE MARKETS

Stocks rallied yesterday testing new intraday highs on news that Pfizer’s COVID-19 vaccine was 90% effective and that the Presidential election was getting even closer to being resolved.

The S&P500 climbed by +1.17%, the Dow Jones Industrial Average traded up by +2.95%, the Russell 2000 index jumped by +3.70%, and the Nasdaq Composite Index fell by -1.53%, dragged down by a tech selloff.  Bonds fell and 10-year treasuries added +11 basis points to 0.92%.

NXT UP

- NFIB Small Business Optimism (Oct) came in at 104.0, same as last month’s read.

- JOLTS Jobs Openings (Sept) is expected to have increased slightly to 6.5 million openings from 6.493 openings last month.

- The Fed has a full calendar today which includes engagements by Governors Kaplan, Rosengren, Bostic, Quarles, and Brainard.

- This morning Advance Auto Parts, DR Horton, Corsair Gaming, and Rockwell Automation all beat expectations.  After the bell we will get earnings announcements from Lyft, Rackspace Technology, Eastman Kodak, and Datadog.

daily chartbook 2020-11-10