As I write this piece on November 13th, two seemingly incongruous events are taking place. First, Covid-19 is on the rampage in the U.S. as never before, with a record 165,000 new cases being recorded today (after only having reached a 100,000 new case rate just eight days ago). Given this alarming acceleration in the rate of spread, lockdowns are likely to be announced in the coming weeks in many areas of the country and local economies are unfortunately going to suffer. The human cost will also be very, very painful for the country in the coming months. Meanwhile, the U.S. stock market is having a great November and closed today at an all-time high. What is going on???
The Big Event for Investors (No, Not the Election.)
Some analysts attribute much of the strong performance of equity markets in November so far to the fact that Election Day came and went without major unrest around the country and that President-Elect Joe Biden will likely have to tangle with a Republican-controlled Senate. The election was certainly a risk factor for many investors, and plenty had raised cash ahead of November 3rd. Now that this potential risk has been cleared, a relief rally in the markets seemed in order as investors flooded back in to replenish their positions.
In our view, however, by far the most important recent news for the markets was the November 9th announcement of interim efficacy data for the vaccine candidate that New York-based Pfizer and Germany-based BioNTech are advancing: their vaccine was found to be more that 90% effective in preventing the spread of Covid-19. If this vaccine should eventually work as well in the general population as it is working with the 43,538 participants in the Pfizer/BioNTech Phase 3 clinical study, it is practically impossible to overstate the momentous implication of this discovery. Not only will this vaccine save many, many lives that would have been lost to Covid-19 in the coming months and years, but it will ultimately enable the global economy, and indeed humanity itself, to come back to life.
The Beginning of the End for Covid-19
To us, it seems investors are basically saying, collectively, that they believe that the Pfizer/BioNTech (and other) vaccines now in the pipeline represent the beginning of the end of the Covid-19 pandemic. Of course, there are many things that need to happen logistically, in terms of further vaccine testing, production, distribution and administration, for the vaccine to put a stop to the spread of Covid-19, but markets appear to be signaling that the tide is turning on the pandemic.
Investors Betting Life Comes Back in 2021
While the overall markets have sprinted higher so far in November, the complexion of the rally is also telling. In the months after markets hit bottom on March 23rd, technology stocks and other “work-from-home” stocks led the way higher, far outperforming more economically sensitive asset classes, such as small- and mid-cap stocks, and sectors such as financials, industrials and energy. November, so far, has been the reverse as investors apparently reposition for our economy to reawaken in 2021.
Despite the encouraging progress on vaccines and therapeutics, the worst of the pandemic is probably still ahead of us, unfortunately. Given the infection rates now, however, the next few months will be a grim stretch for the country as we cope with a flood of cases. We hope everyone is staying safe and well.
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