A Shot In The Arm

A shot in the arm.  Stocks had a mixed close yesterday as Monday’s positivity flowed into a second day of value buying. Capital flowed from pandemic-vaunted growth sectors into pandemic-shunned value sectors.

N O T E W O R T H Y

Boosted.  Monday’s announcement by Pfizer about its gene-based vaccine added fuel to the optimism caused by the conclusion of the Presidential race to drive stocks higher on Monday.  I have been highlighting certain nuances about the recent rallies that show a growing interest in a post-pandemic world and many of them were accentuated at the beginning of the week.  There are other factors that drove the rally.  Let’s start with animal spirits.  Even the toughest Wall Streeters have become slightly worn down as the pandemic has dragged on which was only worsened by intense political infighting and lack of clear direction coming from the nation’s leaders.  Over the course of 2 days the haze began to lift with some real positive news in the race for a vaccine and some almost-finality to what the political landscape might be for the next four years.  Good or bad, Wall Street likes certainty.  Monday morning was like that first day of Spring, the sun shining, the birds singing… and markets swinging.  Wall Street can get a little emotional, but it usually doesn’t last too long.  As Monday’s session wore on, the indiscriminate buying turned into buying… and selling with purpose. When the day was over the strategy became clear: investors are positioning for a recovery… soon.  Animal spirits were present on Monday.  Sidelined money was another factor as many investors were waiting to get through elections and get some solid vaccine news.  Go figure that both would come over a single weekend.  Sold were lockdown stocks (Clorox, Peloton, Netflix, Zoom), growth stocks (Nasdaq Composite Index, Info Tech Sector), and  treasury bonds. Bought were high yield bonds (which trade more like stocks), crude oil / energy, value sectors (Energy, Real Estate, Financials), small cap stocks (Russell 2000 Index), healthcare stocks, and ghosted pandemic industries (Lodging, Travel, Airlines, Cruise lines).  Yesterday’s session was a more orderly rotation trade and was a continuation of Monday’s theme.  Energy topped yesterday’s sector list, adding +2.52% with 72% of its constituents in the green.  Crude oil was up another +2.66%, adding to it’s +8.48% jump on Monday as investors expect the re-opened economy to increase demand.  The value-heavy Industrial Sector added +1.79%, which was boosted by Capital Goods and Transportation.  The Financial Sector continued its climb with Insurance contributing most of yesterday's gains.  The Information Technology Sector ended the day on the bottom of the list, dragged down by Software and Semiconductors, which lost -2.36% and -3.43% respectively.  At a lower level, it should be noted that some of the stocks that experienced exuberant adoration on Monday gave back some gains yesterday as investors took some profit. Volatility has calmed somewhat as the VIX Index closed at 24.80 after trading in the high 30’s and touching 40 leading up to the election.  With lower volatility, we are likely to witness a continuation of rotation in addition to mean reversion as traders position themselves for the remainder of what is historically the winningest quarter.

THE MARKETS 

Stocks had a mixed close yesterday as investors continued to move capital out of pandemic growth stocks to post-pandemic value stocks.  The S&P500 lost -0.14%, the Dow Jones Industrial Average climbed by +0.90%, the Russell 2000 Index jumped by +1.88%, and the Nasdaq Composite Index dropped by -1.37%.  Bonds slipped and 10-year treasury yields added +3 basis points to 0.95%.

NXT UP

- Today the bond markets are closed in observance of Veteran’s Day and there are no economic numbers.

- Air Products beat estimates this morning and we will hear from Vroom and GrowGeneration after the closing bell.

daily chartbook 2020-11-11