By: Spencer Israel
Last week’s market reaction to the best news that we’ve had in quite some time was telling—and not in a good way.
The headline that Pfizer (PFE) and BioNTech’s (BNTX) COVID-19 vaccine candidate appeared to show a 90% efficacy rate in stopping the virus sent the major indexes flying to all-time highs. By the market open on Monday, airlines, cruise lines, and restaurant stocks had rallied 20, 30, and 40%. Some smaller names, like Dave & Buster’s (PLAY) were up as much as 50%.
The rotation was on in a hurry. While “reopening” stocks blasted off, “stay-at-home” names (i.e. tech) got hammered. It was the biggest one-day rotation from growth to value since 2008. And the trade continued on Tuesday, with the Russell 2000 rising 1.8% and Nasdaq 100 falling 1.6%.
But as has been all too common in the last decade-plus, value’s moment in the sun was short-lived.
Beginning Wednesday, growth once again took control. In the final three days of last week, the Nasdaq 100 rose 2.5% to the Russell’s 0.5%. Across the board, stocks that had ripped higher on Monday proceeded to spend the rest of the week coming back down to earth.
This was even the case for the stocks at the center of the rally. Pfizer, which had opened 16% higher on Monday morning, only finished up 6% for the week. And BioNTech spent the week steadily giving back half its gains from Monday.
While some of that weakness may have been the result of a course correction from the over rambunctious rally to start the week, it’s nonetheless notable. Serious questions still remain about the vaccine. When will it get approved? How quickly will it get manufactured and distributed?
The market’s tepid response makes it clear we are not out of the woods yet. COVID cases continue to rise, and though a federal lockdown doesn’t appear likely to happen, individual states are slowly reimposing restrictions.
All of this brings us to this week. Monday morning, Moderna (MRNA) announced its own COVID vaccine candidate was 94.5% effective in preventing the virus and that the firm intends to file for an Emergency Use Authorization with the FDA “in the coming weeks.”
Once again, reopening stocks rallied and technology stocks dropped—though the moves were not as pronounced as last week.
Will this week be a case of deja vu all over again? Until we get more clarity on a specific timeline for vaccine approval and distribution (or new cases start to go down), traders would be wise to approach every reopening rally as a “sell the news” event.
The author is long the S&P 500 in his retirement account.
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