Text size
Medical staff carry cold storage boxes containing injectable material during the Phase 3 trial of the Johnson & Johnson Covid-19 vaccine.
Angel Garcia / Bloomberg
The stock market has not been built since Halloween.
The
Dow Jones business average
slipped 283.71 points, or 0.9%, last week, to 30,814.26, while the
Nasdaq Composite
fell 1.5%, to 12,998.50. The S&P 500 fell 1.5%, to 3768.25, the biggest decline since the week ended 30 October, but then fell back 5.6%. However, it was a
S&P 500’s
the first weekly decline of more than 1% since then, a sign that investors, who could not be reduced so far, were taken by what they saw.
And it was not so different from what was worrying the market back in October, even if the magnitude of the concern was much smaller. That was the week before the election, and investors were on the edge. The Covid-19 route and its impact on the U.S. economy – and on economic data such as October non-farm payments – was also a concern. The first reading of coronavirus vaccines was imminent, and expectations were low.
Everything turned out well. The presidential election turned into a political event, not a market one, payers surprised the upside, and then, on November 9,
Pfizer
(ticker: PFE) reported that early data showed that his vaccine had an efficacy above 90%. The stock market has not fallen more than 1% since then.
So far. Last week – with the market looking forward to an establishment and the potential in the wake of the Capitol unrest and Donald Trump’s second impeachment – was appalling for economic data. Whether it was small business optimism, consumer inflation, or just about anything else, the numbers painted a picture of a slowing economy faster than expected. Initially jobless claims, which peaked since August, and sales, which fell 0.7%, were particularly alarming.
Of course, there were good reasons for all this. Covid ‘s cases have been on the rise – global deaths have now reached two million – and much of the economic damage has been caused by the renewed locks across the country. But there is another factor, says Jefferies economist Aneta Markowska: fiscal slowdown. Covid’s first relief package was followed by an increase in retail sales, which slowed as the cash and gains ran out. They could go back more than 10% month-over-month thanks to the new $ 600 checks and unemployment benefits, and are likely to jump again if even part of a $ 1.9 trillion fiscal relief package is received Joe Biden passed.
And that doesn’t even mean that the battle against the virus, now focused on how difficult it is to spread the vaccine, should turn for the better as more people get the
Moderna
(MRNA) and Pfizer-
BioNTech
(BNTX) inoculations, and
Johnson & Johnson
(JNJ) is preparing to release end – of – term test data on its own vaccine by the end of January.
The Johnson & Johnson vaccine, in particular, has the potential to be a game changer, says Dennis DeBusschere, Evercore ISI strategist. Unlike the Moderna and Pfizer offerings, Johnson & Johnson only needs one design. If the data is good – and early test results suggest that – there may be a sudden shift in feeling for the better. Investors are keeping a close eye on the effectiveness of the vaccine, which is now expected to be somewhere around 80%. A higher number, and the market could start, just as it did back in November. But even a lower number should be good for the market – and all of us – if the vaccine shows that it can exacerbate the severity of the disease, DeBusschere says.
In addition, it will have a huge impact on some of the most popular speculative trades – the unemployed, high-value companies that have recently lit up the market. If reopening happens as DeBusschere expects, bond yields could catch up with inflation expectations, possibly rising as high as 1.6% or so, making real yields less negative. That would mark the end of the speculative trade. “That’s where the math for speculative technology gets bad,” DeBusschere says.
If you are skeptical that trading has shifted away from high-growth technology to economically sensitive stocks, just take a look at the additional FAANGs
Microsoft
(MSFT) produced from the end of August. The stocks of
Facebook
(FB),
Apple
(AAPL),
Amazon.com
(AMZN),
Netflix
(NFLX), Google’s parent
Alphabet
(GOOGL), and Microsoft has fallen an average of 5%, even as the S&P 500 has gained 8%. Only one, Alphabet, is up since then, and just 6.6%.
Big Tech’s market dominance appears to be declining. The day of tech counting is yet to come.
Read more Dealer: 3M stock is loveless and unfounded. This is why it could shoot higher.
Write to Ben Levisohn at [email protected]