Buy The Dip (“BTD”) Begins
Market Update 2020-11-16.
Breaking News: Moderna Vaccine 94%+ Effective
Monday Ground Hog Day! U.S equity futures are up the morning of 11/16, finding support from Moderna’s positive vaccine news. Treasury yields are slightly higher along the curve, by as much as 2.0 bps at long end. The US dollar is weaker.
Equity markets rallied sharply last week on word that Pfizer had seen promising test results on a COVID-19 vaccine. With interest rates lurching upward, the market opened Monday to a big rotation into value and small cap stocks. We expect some of last week’s moves to prove to be temporary reactions, as they have been going on since July 4th weekend.
The equity market broadly was the big winner, with the S&P 500 jumping almost 4% in early-week trading. As the dust settled, the index finished up about half as much at 2.2% on the week. The real story was the rotation across region, sector and size.
Sectors
At the sector level, the rotation was clear, as sectors that struggled most to come back during the pandemic posted the strongest gains. With Treasury yields selling off, U.S. banks rallied 11%. The most likely to take relief from a vaccine, the economic impact has been on Main Street and therefore banks’ loans. Cyclical sectors rallied with energy leading the pack and industrials rising sharply. The stay-at-home leaders, technology and consumer discretionary, moved to the bottom of the leaderboard and were down on the week despite the good news. The Nasdaq was down 0.6%.
S&P small caps jumped almost 9% at one point and finished the week up 4.7. This reflects the fact that more economic damage has been inflicted the lower you go on the size scale. Recall, the gap between year over year performance in large S&P 100 stocks and the small S&P 600 stocks has been the widest in 21 years.
Bonds
Treasury yields backed up with the 10-Year jumping about 18 bps at one point, to the highest level since March. Shorter term treasuries are pinned down by Federal Reserve guidance and barely budged. The “yield curve”, on a 10s-minus-2s basis, reached the steepest since 2017. This is great news for breadth in stocks, the banks, and the overall stock market.
Please listen to our podcast from three weeks ago entitled: “Waiting No More — This is How Early Bull Markets Look.”
Markets/Economy Outlooks
Our complete second half outlook 2020 has been also posted since July and can be found by clicking here.
Our outlook for H1 2021 will be published in the coming weeks, however we tentatively envision S&P 500 targets of 4050–4100 in mid-H1 2021, and 4500–4600, or higher, by Christmas 2021.
Weekly market updates contain general information and expresses views of Oak Harvest Investment Services. Data, Articles, and information cited are believed to be reliable at the time of creation, but are not guaranteed. Nothing in this content is intended as, nor should it be regarded as, personalized investment advice. Strategies and ideas discussed may not be right for you. Views and opinions expressed may change without notice and do not constitute a recommendation, or an offer or solicitation to buy or sell securities. In addition, Oak Harvest makes no assurance as to the accuracy of any forecast made. Indexes like the S&P 500 are not available for direct investment and your results will differ. Past performance is not indicative of future results. Investing involves the risk of loss.
