Monday Morning QB - Market Observations:
- U.S. Reports More than 150,000 New Coronavirus Cases in a Single Day
- Pfizer Vaccine Gives Hope for Stymieing the Advance of the Coronavirus
- Stocks Rally Off Vaccine News but Finish the Week Mixed
- Investors Favored Small Caps and Value Stocks Over Growth Stocks
- Investors Appeared to Wrestle with New Lock Downs vs. Hope of Normalcy Due to Vaccine
Monday Morning QB - Market Performance:
Most of the major U.S. benchmarks added to last week’s sharp gains, thanks to the positive vaccine news from Pfizer. All the major indexes touched all-time intraday highs on Monday but surrendered much of their gains by midweek in response to the rising number of new coronavirus cases.
Did the vaccine news stir a tide change in the stock market? Investors, last week at least, decided to pull away from the technology stocks that had been the driving force behind the stock market's rise since March.
The Dow Jones Industrial Average and the smaller cap benchmarks performed the best, while value shares easily outperformed their growth counterparts. The S&P 500 Value Index outperformed the S&P 500 Growth Index by more than 4.7% last week!
The Dow Jones Industrial Average added over 1,100 points finishing the week at 29,480, a gain of 4.1%. The technology-heavy NASDAQ Composite retraced some of last week’s surge and was the only U.S. stock index to finish down for the week at 0.6%.
By market cap, the large cap S&P 500 added 2.2%, while the mid-cap S&P 400 and small-cap Russell 2000 added 4.3% and 6.1%, respectively.
Hope – 90% Effective Vaccine is Coming
Last Monday started with milestones no one wanted to see reached as confirmed coronavirus cases topped 10 million in the U.S. and 50 million worldwide. These staggering numbers made the announcements by Pfizer, and Eli Lilly, even more welcomed news.
Pfizer ruled the day with the news we have all been waiting to hear – a vaccine is imminent.
The Pfizer vaccine requires two shots and was found to be over 90% effective at seven days after the second dose. Pfizer representatives said they are on track to ask health regulators for permission to sell the two-shot vaccine before the end of November if data continues to show it's safe for public consumption.
Eli Lilly also announced last Monday some news of their own, not a vaccine but a treatment.
The Lilly treatment shows promise in stopping those who have mild cases from getting worse. The Lilly drug has the potential to reduce the number of hospitalizations, lessening the strain on the healthcare systems. The FDA authorized emergency use of the treatment for people exhibiting mild to moderate symptoms.
My personal take away and reason for hope and optimism clings to the fact that the virus can be beaten. We have not won yet but are making significant progress.
As promising as the Pfizer news is, Pfizer is not alone on this front.
Moderna hopes to release its results from their clinical trial soon, and other company efforts are ongoing as well. Over the next several months, possible outcomes are coming from AstraZeneca, J&J, and Novavax, to name a few.
The stock market was ignited by the vaccine news last Monday, making it the sixth straight day of gains. Based on the vaccine news, investors seemed ready to switch investment gears for faster economic growth and higher inflation due to a fully functioning economy.
The Dow and the S&P 500 hit intraday highs before giving ground at the close. We were set to roll until we weren't!
Reality – Covid-19 Cases and Hospitalization on the Rise
Eli Lilly's head of research, Daniel Skovronsky, summed it up best, "We are fighting something that is fighting back." Covid-19 was not about to let the headlines turn positive without a fight.
Despite our media outlets choosing when to cover and when to ignore pandemic issues, the case count has been rising for weeks.
The U.S. continues to report more than 100,000 new cases a day. More cases typically lead to more hospitalizations. Coronavirus hospitalizations reached a record of almost 62,000 people, topping the spring peak of around 60,000.
The new high hit last Wednesday has been predominantly blamed on "Pandemic Fatigue." I know I sure am suffering from it!
Unlike the geographically clustered outbreaks from the spring and summer, new cases appear to be coming from everywhere.
Health care workers are being stretched thin as hospitalizations rise. We have a finite number of beds and health care workers. The wider the spread, the less mobile our health care professionals can be. A hospital cannot afford to send its workers elsewhere if the hospital itself is being overrun.
The Covid-19 numbers are scary, and thus the lockdown scenarios are being floated. The stock market reacted as expected, giving back some of the gains earlier in the week before the rally again on Friday.
Our portfolios will continue to be subject to the ebb and flow of positive or negative COVID-19 news.
To this point, the fluctuation continues to fall into the volatility category, which is not inherently bad.
Volatility is the cost of building wealth over time, and, with that said, volatility does require some patience. The course of the last few weeks has been a good demonstration of volatility that requires patience.
While we wait to see if the rotation from Tech stocks to small caps and value stocks is a new trend, one eye always needs to be fixated on the virus.
It appears we are on a collision course for either more lockdowns or modern medicine winning the day. Which one occurs first will undoubtedly have a directional effect on the stock market.
We are forever vigilant and purposefully attuned to following the market trends.
We always have time for you, so do not hesitate to call with any questions.
Have a great week, everybody!