My, it's been a busy 10 days!
Markets & Vaccines
By: David Smyth, November 19, 2020
My, it's been a busy 10 days! One for the record books, I'd say, but we have a winner - or do we? Regardless, someone will be sworn in come January. I think.
I heard from many of you in the weeks leading up to the election who were afraid of a market crash based on who was (or wasn't) elected. Fortunately I didn't listen to that, or the woman who waters the plants here in our office (she was also certain of a market crash). I heard the concern, but here's the thing: When everyone is positive something is going to happen, it usually doesn't.
Since election night, we've seen an impressive move higher in the financial markets. Outside of the uncertainty of the election (finally) being (almost) over, the reason for the rally is Pfizer's news of a 90 percent effective Covid-19 vaccine. This development caught everyone off guard, as even Dr. Fauci himself hadn't anticipated a vaccine with greater than 50 percent efficacy, like the flu vaccine.
The markets responded very positively for value stocks (companies that typically pay larger dividends), and any company that needs people to move around and travel face-to-face. On the flip side, stay-at-home stocks like Zoom are experiencing significant selloffs, as it was expected that now that we have a vaccine, all the services people use at home are going to be cast aside in favor of in-person interactions again.
So, let me get this right: People are selling Zoom because no one will ever video conference again - right? And Amazon because everyone will start shopping at brick-and-mortar stores again - right? And PayPal because a cashless society is nonsense - right? And Netflix because we'll be out group exercising and running marathons come spring - right? You can probably guess that my answer is - wrong!
I do believe there are certain trends and companies that are part of those trends that are dictating the future of our society. That's not to say they can't trade down as a market rotation occurs, but at the end of the day, money will return to the companies that are significantly growing their top line quarter after quarter and year after year. One lesson the pandemic has taught us is that it's not a good idea to invest in a company that has to have people in-store or in good health to meet quotas.
Sure, somebody can pull the trigger and sell the above companies ringing in a nice profit if you've owned the through the pandemic, but don't think for a second that there won't be another disruption coming, whether from a second wave of Covid or, well, just use your imagination.
In addition, it's important to understand that, even with a vaccine coming available in the next few weeks, there are very specific requirements to successfully transport the vaccine and maintain maximum efficacy. And, it takes time to vaccinate enough people to start changing the direction of Covid-19. It's great that there's a vaccine, but in the short term, nothing has really changed. Air travel is still a shell of its former self. Movie theaters are still ghost towns. A lot of companies and businesses will continue to bear the brunt of the shutdown until enough doses can get out. The monetary rotation won't happen in six or nine months. In my opinion, we're talking two or three years.
At the end of the day, my take on all the happenings of the last 10 days is that I still believe long-term in America, and I believe 100 percent in American innovation. I'm so happy that science disproved a lot of people who said a vaccine was impossible. Now, as a country, we have to carry on until those who need it are vaccinated, and the word "Covid" is no longer always on the tip of our tongues.
As an American, I believe that our economic future is bright, and like any other challenge thrown our way, as a country, we'll rally, and reinvent ourselves once again.
*The companies mentioned are for informational purposes only. The commentary is for educational purposes only and should not be construed as individual investment advice nor a recommendation to purchase or sell any investment product.