The Week After…

“The Dow is on pace for its best post-election day rally in 120 years,” said the Wednesday (11/4/20) lead story on Marketwatch.com. The subsequent days certainly reinforced this headline. The market appears to have fully priced in a Biden victory along with Republicans maintaining control of the Senate. Putting it in more practical terms, the tax cuts passed in 2017 are likely to stay in effect for at least another two years. As we have said on many occasions, the market prefers divided government, and apparently this even applies during an accelerating pandemic. And of course, the extremely accommodative monetary policy of the Federal Reserve will continue for as long as it’s needed.

Speaking of the pandemic, another major story driving the upswing is the announcement by Pfizer and BioNTech (a German biotechnology company) that their jointly developed vaccine has proved to be over 90% effective after being tested on nearly 44,000 participants in its phase III study. The duo plans to manufacture 50 million doses before the end of the year and 1.3 billion doses in 2021. At a 90%+ effectiveness rate, herd immunity becomes possible, assuming a high enough percentage of the population agrees to be vaccinated.

Yesterday’s stock price movements afforded a crystal-clear view of which companies are pandemic plays and which are the opposite. In the former category, we have Amazon (down 5.1%), Costco (down 5.4%), and Netflix (down 8.6%). In the latter category, there’s Southwest Airlines (up 9.7%), Marriott (up 13.9%), and the granddaddy of them all, Royal Caribbean (up a whopping 28.8%). For those who are curious, Pfizer was up 7.7% and BioNTech was up 13.9%. In comparing these two increases, it is important to note that Pfizer is about nine times larger than BioNTech.

In more general terms, an index fund tracking large growth stocks (VUG) was down 1.5% while a small value index fund (VBR) was up 5.7%. As of today's close, VUG is down another 1.5% while VBR is up 1.8%. This divergence represents a marked change from what we have become used to seeing, especially these past few years.

Finally, with Veterans Day tomorrow, we wanted to take this opportunity to express our gratitude to our clients and retirement plan participants who have served. Thank you for your service.