Daily Market Notes: 11-24-2020

For the third Monday in a row, or what is becoming known as “Medicine Mondays”, more encouraging news on the development of coronavirus vaccines and treatments helped power stocks higher on Wall Street yesterday, as the market clawed back most of its losses from last week.

As a result of this optimism, the various indices opened higher than what the stock index futures were indicating and the Dow in particular was the upside hero as large gains in BA and the financials, in addition to DIS and V, pushed it to the mid-200 level when at 2:50pm it got another upside boost as it was announced that former Fed Chair Janet Yellen was nominated to be the new Secretary of the Treasury.

This got the Dow to as high as a 404 point advance before it finally ended with a closing gain of 328 to 29,591. The S&P lagged on a relative basis as it could only muster a 20 point advance to 3577 from a morning high of 33. It was hindered once again by weak showings from its largest components such as AAPL, AMZN, FB, MSFT and NFLX as the rotation out of these stocks continues and into the laggards such as energy which had another strong day, as did the financials and travel stocks as well.

And talk about a laggard, the Nasdaq was only able to eke out a small gain of 25 to 11,880 hindered by the weak showings as just mentioned but helped by further gains in TSLA, MELI and ROKU to new highs. On the other side of the ledger, the Russell 2000 Index of small stocks continued its latest upward thrust with a new record close of 33 to 1818. And how about these smaller Chinese electric car companies which have exploded further to the upside, and they include NIO, XPEV, LI, KNDI and BLNK.

Breadth numbers were strong at a 4 to 1 upside ratio and the VIX continued to slip and ended at 22.66.

The latest vaccine developments are helping to raise hopes that some normalcy will eventually be restored to everyday life and the economy. It is also tempering lingering concerns over rising virus cases in the U.S. and new government restrictions on businesses aimed at limiting the spread.

Many of the companies making gains would greatly benefit from a vaccine, allowing people to travel, shop and dine out. Cruise line operator CCL gained 5% and hotel company MAR gained 3%.

AZN is the latest drug developer to report surprisingly good results from ongoing vaccine studies. It said the potential vaccine, which is being developed with partner Oxford University, was up to 90% effective. Unlike rival candidates, however, its vaccine doesn’t have to be stored at ultra-cold temperatures, making it easier to distribute.

Last week, PFE and MRNA both reported study results showing their vaccines were almost 95% effective. And, over the weekend, REGN received U.S. government approval for emergency use of its COVID-19 treatment. The drug, which the President received when he was sickened last month, is meant to try to prevent hospitalization and worsening disease from developing in patients with mild-to-moderate symptoms.

The string of upbeat news about vaccine development has been butting up against increased caution as the virus continues to threaten the economy. That push and pull ultimately sent the S&P 500 to a loss last week. But, in the longer term, any positive updates on the vaccine front should be more dominant for the markets. Any hesitancy in the market at this point should be centered around the issue of company valuations and how fundamentally sound companies are when more normal economic conditions return.

Even with its weekly decline last week, the S&P is ahead with a 9.4% gain this month. Trading is expected to be light this week ahead of the Thanksgiving holiday. The Dow has gained 11% this month for its best such showing since January 1987.

Bond yields inched a little higher with the 10-year Note at .86% while crude oil reached its highest level since September at more than $43 a barrel. On the other hand, that beloved supposed “safe haven”, otherwise known as gold, got clobbered to the downside at $1,835 an ounce due to better readings from the IHS Markit Manufacturing and service sectors, in addition to progress on vaccines, which lessens the anxiety trade, so to speak, and so be it.

The S&P trades at unknown profit figures for 2020, as the earnings number will be lower this year due to the virus, probably around $136. If that is the case, then the current P.E. multiple is a historically high 24. On the other hand, it is difficult to put a correct price/earnings multiple for 2020 at the present time because of the large variability in earnings predictions. First-quarter earnings came in at a decline of 13.5%. Second-quarter earnings were lower by 32%. For 2021, the consensus is for $176 in earnings which means that the S&P is trading at a 20 multiple, higher than the historical average but not too much considering the record low interest rates currently in existence. The third and fourth quarters of this year are now projected to show earnings declines of 6.3% and 14% respectively, so this is still a weak profit picture, although companies can rise if they can beat the lowered expectations such as what has been happening lately.

The earnings decline for the third-quarter was solely due to poor results from the energy sector, restaurant and leisure stocks and airlines, no surprises here and if one removes these results, the overall earnings would have been higher by 4.3% which goes to show how well the other sectors have done.

This week will bring the number of S&P companies to more than 97% reporting for the third-quarter and the lineup is as follows: yesterday – KFY, WMG higher; today – A, BURL, BBY, HRL and URBN lower and DLTR, MDT, NTNX higher; tonight – ADSK, AEO, JWN, HPQ, GPS, VMW and DELL; Wednesday – DE.

Economic releases will see: yesterday – October Chicago Fed National Activity Index rose for the first time in four months; today – CaseShiller Home Price Index rose by 6.7% year over year, November Consumer Confidence fell to 96.1, November Richmond Fed Manufacturing Index fell to 15; Wednesday – October durable goods orders, second estimate of 3Q G.D.P., October personal income and spending, October new home sales, final November U. of Michigan Consumer Sentiment Index, weekly jobless claims.

Donald M. Selkin

Chief Market Strategist

 

Disclosures:

Don Selkin is the Chief Market Strategist at Newbridge Securities Corporation, member FINRA/SIPC and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide our current or potential customers with timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analysis concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: {Bloomberg Financial, Reuters, and Associated Press}. It is possible that at any given point in time, the author, Newbridge Securities, or one or more of its employees or registered individuals associated with Newbridge Securities, may hold a position, either long, or short, as well as options, bonds or other instruments in the companies mentioned in this report.