Changes: Vaccine News Changing Market’s Leadership Characteristics?

Key Points

  • Last week saw another massive rotation from “stay-at-home” to “get-out-and-about” stocks; but it was, for now, short-lived.

  • We have closed out our overweight large cap/underweight small cap tactical recommendation, after a very successful three-and-a-half years.

  • Euphoria around vaccine news and last week’s market strength is now manifesting itself in both behavioral and attitudinal investor sentiment measures.

This week’s report will look at last week’s market moves in the wake of positive vaccine news (with additional and even better news today); but will also review our most recent tactical recommendation change.

An A and a near-A+ on the vaccine front

Pfizer came out of the gate first last Monday when it announced a 90% effective rate for its COVID-19 vaccine; to be followed up this morning by Moderna’s announcement of an even higher 94.5% effective rate. In both cases, pre-market futures soared on the news; and we can look to last week for details that may be important for investors to consider as we head toward year-end. There was also an election recently—in case you weren’t aware. Of course we did not know the results of the presidential election until the following weekend (and still don’t know what the make-up of the Senate will be); which means it was difficult to parse out the effect of the election and the vaccine news on market behavior last week.

Let’s focus for now on the vaccine news. The analogy I’ve been using since Pfizer’s announcement is that it represents a light at the end of the tunnel. However, given the rampant resurgence in the virus case count, hospitalizations and deaths; we remain in the dark depths of the tunnel. It took eight months between March and October to register nine million cases; while it only took 10 days to get to the 10 millionth case. As good as the vaccine news is—from both Pfizer and Moderna—they are not the perfect elixir for what ails us, either from a health or economic perspective.

Rotation redux

As is typically the case, good macro news works its way into the stock market more quickly than it does into economic statistics. By the time the market opened last Monday, the S&P 500 was up nearly 4% from the prior Friday’s close; although it faded throughout the day. The winners on Monday, which persisted as winners on Tuesday, were decidedly in areas of the market that had been pandemic-era losers. In other words, investors who had a great two days early last week, probably had stellar year-to-date performance; and vice versa.