The S&P 500 surged more than 7% last week, including a 2.2% jump on Wednesday which was the best post-election day rally on record. This morning, stocks are off to the races again as Pfizer released partial results from stage 3 of its COVID-19 vaccine clinical trial which showed more than 90% effectiveness, a number that far exceeded expectations. Pfizer expects to have enough doses for 25 million people delivered by year-end.
This country may remain divided after last week’s election, but we can all rejoice together for what this vaccine news could mean for the lives and businesses impacted by COVID-19. And for all that has happened in 2020, here we are with a stock market hitting fresh all-time highs once again.
Pre-Election Apprehension Subsides
There was plenty of ammo for a post-election selloff last week, at least for those who had the most apprehension heading into election night. A prolonged verdict for which Joe Biden is set to prevail, along with the outside chance of Democratic control of the Senate with looming Georgia runoffs in January.
Investors may be warmed by the likelihood of a divided government, and preservation of the status quo, but it still would have been a tough sell to predict the magnitude of this market rally based on last weeks’ election results. The S&P 500 had its best election week since the Great Depression, and that doesn’t include the 4-5% market rally today on the Pfizer vaccine news.
Part of last week’s rally may have been an early indication of the vaccine news released this morning. Even so, this is a reminder for why investors are better served by letting asset allocation, not market timing, guide their risk budgeting for uncertain events like the election. Knowing the outcome of an event does not tell you how the market will inevitably react to it.
Value Stocks Join in the Recovery
Last week, we touched on the value vs. growth divergence. The timing proved to be prescient as the vaccine news was just what the doctor ordered for value stocks to right the ship. The stocks that have been most negatively impacted by COVID are surging while the work-from-home and growth names are giving back some of their recent gains.
It is too early to say if this is the passing of the torch that value investors have been looking for, especially knowing that interest rates are likely to remain low for the next few years, but the relief rally is still a welcome sight. As we have noted in prior commentaries, even though the stock market is near all-time highs, there are plenty of companies that have been left behind. These companies may propel the next phase of the rally, especially as the economy gears up for far less economic restrictions in 2021.
As we move to the next topic of uncertainty, as the market is apt to do, we are curious on how today’s news could impact the pending fiscal stimulus package discussions. Even with Friday’s better-than-expected jobs report, the economy is still in need of a stimulus bridge into 2021. Just how much and what type of a bridge is up for debate as we must also weigh how we inevitably pay for these stimulus programs down the road.
Jack Holmes, CFA®