With Nerdvember Comes Strange Markets

Before I begin, I should mention that it’s officially “Nerdvember,” which is the month over which I “nerd out” on each of the columns that I write and send out each week. While these articles will be “nerdier” than most, try to stick with me and I promise to keep the words and pictures as easy-to-understand as possible.  Here goes…

The markets fell across the board during the week prior to Election Day.  However, starting on Monday (last week) before the election, and for only the 4^th time in U.S. history, the S&P500 gained more than 1%-per-day, for four-days-in-a-row.

The market paused on Friday, but then on Monday this week, Pfizer (PFE) reported they were having success with a COVID-19 vaccine exhibiting a 90% efficacy rate.  This news caused a couple things to take place:

1. “Open the economy” companies that have been garbage since the pandemic saw big surges in price. Stocks like Carnival Cruise Lines, American Airlines, and Jet Blue were up more than 20%.
2. On the other hand, the “stay-at-home” stocks that have been exhibiting so much strength this past several months were sent straight into the tank. Stocks such as Lowes, Etsy, and Zoom, were beaten down at more than -9%, -18%, and -26%, respectively.

It seems a little ridiculous to me.  Even if a vaccine is ready by year-end – and even if distribution is lightning fast, using the military and all of our resources to get it into the hands of those who need it most – I find it extremely hard to believe that, as a result, people will:

• Stop shopping on Amazon,
• Cancel their Netflix subscriptions, and
• Start booking cruises for the spring

I also find it hard to believe that companies will start booking business-class flights, sending their executives across the world, paying for lodging, food, and cancelling their Zoom subscriptions, just so that their employees can meet with their customers face-to-face.

I don’t think cyber-security is going anywhere, anytime soon.  Telecommunications with hospitals and clinics is likely here to stay, and of course, I hardly think that online commerce and technology are at risk of extinction, but I digress…

While the vaccine news caused some short-term rotation out of technology and into these beaten down “open economy stocks,” as you can see below, the breakout was short-lived, and the market faded throughout the day on Monday, followed by a relatively flat day yesterday.

Contrast the above S&P500 chart with the technology-driven, NASDAQ chart below.  Since the NASDAQ contains a high percentage of “work-from-home” stocks, it barely jumped on Monday morning, and then fell hard through both the remainder of the day, as well as Tuesday’s session.

I’ll “scan out” in next week’s letter, but if I may summarize into words, the stock market has either gone nowhere or down this past 10 weeks (depending on which index you’re looking at), and in order to feel confident that we’re headed higher, into a new, strong leg up from here, we need stocks to “prove themselves.”

For instance, seeing Carnival Cruise Lines up +39% (which pushed the S&P500 up big on Monday) doesn’t do anything for me.  Is this the kind of company that we want to have our hard-earned retirement savings invested in?  Maybe later, once it starts to exhibit some long-term strength, perhaps after a COVID vaccine has been distributed globally… but now, today?

Now that we know who the next president of the United States will be, the possibility of a stimulus package being passed during the Lame Duck Session is slim-to-none.  Even if Jerome Powell agrees to accommodate from an economic standpoint, we need our politicians to work together and agree on a solution in the short-term all while Coronavirus cases surge northward, testing our healthcare system’s ability to handle the pandemic through the winter months.

I feel the long-term evidence is positive for the markets.  However, as we work our way into the colder weather, the recent market action (with the Dow and S&P500 being up while the NASDAQ is down big) might take some time to “prove itself” before heading higher.

Till next time…

Adam