Published November 20, 2020
The stock market has blasted upward in a very bullish sign for investors. Last week we talked about how value sectors were finding buyers. This week, we offer even more evidence of the new bullishness in the stock market. Driving this bullish attitude is the announcement of coronavirus vaccines. Those announcements have led investors to expect a return to some economic normalcy in the first half of 2021. It may be slow, uneven, and stuttering in tone. But that is a far cry from the cloud of complete uncertainty investors have been living under almost all year. Less uncertainty makes investors willing to take more risk. So they have, as the charts below from a wide range of global markets shows.
First up, we have the high beta version of the S&P 500. “High beta” means higher risk. You can see that this ETF has traded under the red line (price of $44) for the past few years, with investors selling each time it approached that price. This month, that has changed, and in a big way, with price blasting higher by more than +20%!
Joining U.S. high beta stocks are two seemingly disparate examples. Below, we show the charts of Japan and Netherlands, two economies driven by completely different factors. Both leaping higher out of years-long sideways consolidation periods.
Next up, we look at financial stocks, one of the worst performing sectors of this year (with energy). Not yet at new highs, financial stocks have nonetheless moved sharply higher as interest rates have recently turned upward. Will this sector be able to join the others in printing new highs? If so, we could well be in the early stages of a new, multi-year bull market.
Stocks continued their recent vaccine-driven enthusiasm Monday rising +1.6% on word of Moderna’s (MRNA) very successful vaccine trial. Beaten-down cyclical stocks from the travel, hospitality, and energy groups fared well. Copper, a key gauge of global economic activity, surged to its highest close in two years. A -0.5% step back Tuesday on a meager retail sales report. However, electric car maker Tesla (TSLA) shot higher on word the company will finally be added to the S&P 500. Despite the high profile of the company, the lack of profitability had kept it out of the primary market index. Stocks slid again Wednesday, this time giving back -1.2% as strong earnings from retailer Target (TGT) failed to offset an afternoon market tumble. The slip occurred on news that rising coronavirus case numbers in New York City were forcing in-person school closures. Indexes turned back positive Thursday (+0.4%) with Senate leader McConnell agreeing to resume negotiations on the next Covid relief bill. Stocks closed the week on a down note, losing -0.7%, on little new news. California joined some other states in tightening restrictions on bar and restaurant hours to slow down spiking coronavirus numbers.
After two torrid weeks in the stock market, it was no surprise that indexes slipped back a bit. Still, the moves were very muted with the S&P 500 (SPY) down only -0.77% while the Nasdaq 100 (QQQ) was essentially flat at -0.19%. The smallcap Russell 2000 (IWM) index actually added handsomely to its recent breakout with a +2.31% gain.
Warm wishes and until next week.