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Stock Market Grapples with Vaccine News and a Rising Case Count

November 23, 2020
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Monday Morning QB - Market Observations:

  • The U.S. Tops 250,000 Covid-19 Related Deaths
  • New Lockdowns Employed Along with School Closings
  • CDC Urges Against Holiday Travel and Large Holiday Gatherings
  • Stock Prices of Vaccine-Related Companies Climb…Warren Buffet is a Buyer
  • Home Sales Reach 14-Year High
  • Markets Look Past Short-Term Concerns as Post-Election Rally Continues on Vaccine Hopes

Monday Morning QB - Market Performance:

Markets finished the week mixed with good news on the coronavirus vaccine front offset by surging coronavirus cases and their severity in many parts of the country.

The Dow Jones Industrial Average, the S&P mid-Cap 400 Index, and the small-cap Russell 2000 Index all reached new intraday highs in the first part of the week before surrendering some of their gains.

The Dow Jones Industrial Average shed 216 points finishing the week at 29,263, a decline of -0.7%. The technology-heavy NASDAQ Composite retraced some of last week's decline by rising 0.2%.

By market cap, the large-cap S&P 500 gave up -0.8%, while the mid-cap S&P 400 and small-cap Russell 2000 added 1.6% and 2.4%, respectively.

Rising COVID Cases are Causing Abrupt Changes Entering the Kickoff of Holiday Season

Last year, approximately 55 million people traveled for the Thanksgiving holiday.

The busiest travel day of the year comes with a stark warning from the Center for Disease Control (CDC) – Don't!

The warning comes as the new case count rises to more than double the daily count reported during the summer outbreak. Hospitalizations and ICU admissions continue to increase in Montana, Minnesota, Wisconsin, to name a few, while the new case numbers continue to rise in 49 states and U.S. territories.

New York, New Jersey, Michigan, and California have implemented new lockdowns and restrictions to stem the spread. Governors in many states have expressed concerns by issuing warning statements but have not gone as far as ordering new lockdowns.

Vaccine News Continues to Signal an End is Near

Since the first news of COVID-19 hit, the hope has always been in creating vaccines and treatments to stop or slow it's spread. A hope was that science would prevail in the end.

After 11 months of waiting, a vaccine has arrived.

Pfizer announced that their vaccine would be available before the end of the year. With Moderna's vaccine hot on their tail, and, as noted in last week's MMQB, other companies are close as well.

Being a dad of a cancer survivor, the good news may extend well beyond the coronavirus. The acceleration of gene-based technology from this research is likely to change the way we treat many of our most extensive health problems, such as cancer and heart disease.

To date, messenger RNA (mRNA), named for how molecular couriers deliver genetic instructions, has never produced a vaccine cleared by regulators for public consumption. Now, mRNA is the basis for both the vaccines produced by Pfizer and Moderna.

Yes, COVID-19 has killed over 250,000 American's, but, hopefully, their lost lives will help save future Americans in countless new ways. The pressure mounting from the number of deaths helped jump-start advancements in medicine in ways nothing else has been able to do with focused and well-funded research as well as removal of many cumbersome research restraints.

My son, Sean, is here today partly because of a drug born out of a horrific situation. Children who had developed leukemia in the late 1950's were bleeding out and dying before anything could be done to help them. An experimental drug was used (against public outcries) to temper the bleeding long enough to be able to treat the cancer. That controversial drug became part of the chemotherapy regimen that helped save Sean's life just nine short years ago!

In life and in investing, one must look past the darkness in the hope of better days ahead. We must always be looking for where the next investment opportunities may be as a result of this world-altering virus.

When Sean was in treatment, my family was simply grateful for having one more day to spend with him, and to this day we still view every new day as a gift. We know many families who are not so lucky. We find solace in knowing that every cancer child's path is part of a clinical trial. Every child lost, and every fortunate survivor brings us closer to better treatments, and hopefully one day cures for all the different types of childhood cancer.

I can close my eyes and imagine a world without either cancer or COVID-19.

Warren Buffet is Betting on the Vaccines

I am not alone. According to public filings, Warren Buffet's company, Berkshire Hathaway, Inc., put its money where Warren Buffet's mouth was.

In multiple public interviews, Mr. Buffet has highlighted his hope that good old-fashioned ingenuity will end the virus and create a better tomorrow. His investment strategy, which he shared publicly, spread investment dollars across several vaccine-related companies.

To create funds, Berkshire recently sold shares of large banks, such as Wells Fargo, and combined those funds with proceeds from selling airline stocks at the pandemic's onset. While still sitting on a large cash pile, Mr. Buffer has made significant investments in Merck, Bristol-Myers Squibb, and AbbVie.

Mr. Buffet appears to be betting on the end of the virus sooner than later.

It should also be noted that the disclosure of Berkshire Hathaway's investment changes showed that the actual sales and purchases occurred before the third quarter ended on September 30, ahead of the recent vaccine-related news.

The More Data We Collect, the More We Understand about the Coronavirus

Although hospitalizations are currently on the rise, the time spent in the hospital is declining.

Health care providers across the country are saying that new tools combined with a better understanding of how the coronavirus attacks the body have improved medical outcomes.

For example, the Wall Street Journal reported the Mayo Clinic's hospital in Rochester, MN has seen the median stay for coronavirus cases drop to five days, half the time compared to March hospitalizations. Other hospital systems throughout the U.S. are reporting similar successes.

Hospitals are reporting that the average age of coronavirus patients is younger than in March, also contributing to the improved numbers.

Is Covid-19 Like Other Coronaviruses, i.e... "The Flu"?

We all know the flu comes and goes with the seasons, but what about Covid-19? This is an excellent question as we enter the flu season.

Goldman Sachs Global Investment Research group took weather temperature data from NOAA and NASA and compared it to COVID-19 data from Johns Hopkins University. They found a very distinct correlation between the current rise in COVID-19 cases in some parts of the country and the change in temperature since July (when Covid-19 cases had reached a low).

The chart below shows that those areas whose average temperatures have fallen by 10 degrees or more since July have experienced a rise in COVID-19 cases, while those areas with lesser temperature changes have not.

The relationship is relatively linear; temperature change matters. If this relationship is validated by further research, the implications for the virus's public health management are enormous.

Just another reason to live in the south!

As a reminder, no MMQB next Monday. Mike and I are off on Thursday and Friday, so no one will be working to write it. Stay safe out there and have a great Thanksgiving!

(sources: all index return data from Yahoo Finance; Reuters, Barron's, Wall St Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, www.stocksandnews.com, www.chaikinanalytics.com Chaikin Analytics, www.marketwatch.com, www.BBC.com, www.361capital.com, www.pensionpartners.com, www.cnbc.com, www.FactSet.com, W E Sherman & Co, LLC)
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