Market Perspective for November 17, 2020

Monday’s stock rally was fueled by positive news from Moderna (MRNA), a pharmaceutical company working on the development of a coronavirus vaccine, about promising late-stage clinical trial results. Moderna reported a higher-than-expected efficacy rate of 94.5 percent in Phase 3 clinical trials. In addition, Moderna reported that its vaccine candidate also maintained its stability at refrigerated temperatures for longer than predicted, which bodes well for efficient widespread distribution to the public. This major announcement comes just a week after Pfizer (PFE) stated that its vaccine, which BioNTech (BNTX) is also assisting with developing, showed an efficacy rate above 90 percent in Phase 3 clinical trials. That news sparked a similar surge for stocks, especially value stocks and those hit hardest by the pandemic shutdowns. Moderna shares traded up 9.58 percent at $97.95.

The Dow hit a new intraday high following the vaccine announcement. With 456 points added before noon, the Dow climbed 1.6 percent, which topped its previous record set last week following similar upbeat news on vaccine developments. The DOW closed up 1.60 percent for the day, while the S&P 500 advanced 1.16 percent.

The Nasdaq was largely sidelined from the day’s rally. It still ended the day positive, but by a relatively smaller margin of 0.80 percent. Amazon (AMZN) shares closed higher but underperformed the market with a comparatively small gain of 0.072 percent. Netflix (NFLX) shares, one of the early winners at the beginning of the pandemic, closed down 0.77 percent for the day. Likewise, Zoom (ZM) shares dipped 1.10 percent Monday.

The Russell 2000 was up 2.37 percent for the day with a gain of 41.29 points.

The 10-year Treasury yield also responded positively to Monday’s vaccine news. It was up 1 basis point to 0.901 percent. This mirrors the jump in the 10-year rate from last week. iShares iBoxx High Yield Corporate Bond (HYG) rallied 0.53 percent on the day, iShares iBoxx Investment Grade Corporate Bond (LQD) and Invesco Senior Loan (BKLN) both rose 0.32 percent. iShares 20+ Year Treasury (TLT) fell 0.23 percent.

The energy sector posted the largest relative gains for the day among the 11 sectors. Oil prices rose 0.31 percent to 41.47 per barrel on renewed optimism over increased consumer demand for travel. SPDR Energy (XLE) climbed 6.58 percent.

Major airline sectors traded up for the day. United Airlines (UAL) shares closed 5.2 percent higher, American Airlines (AAL) 4.49 percent, and Delta Airlines 4.2 percent. Similarly, cruise line stocks, responded positively to Monday’s vaccine news. Royal Caribbean Cruises (RCL) shares closed up 6.96 percent, Norwegian Cruise Line (NCLH) 6.23 percent, and Carnival (CCL) 9.74 percent.

Tesla (TSLA) shares lost 0.10 percent for the day but are set for a significant rebound. S&P Global announced late Monday afternoon that the company will be joining the S&P 500 before trading opens on December 21. Tesla will join the Index as one of its top 10 most valuable companies based on its Monday share prices. In after hours trading, Tesla shares spiked 9 percent. It remains to be seen which company that Tesla ousted from the S&P 500.

This Thursday, the European Council will meet to discuss the finalization of UK’s Brexit deal from the European Union amid the pandemic. The U.S. banking industry will be watching these developments closely to gauge their potential impact on UK and European trade and business relations as well as whether demand for domestic loans will suffer. While the deepest impact is likely to be contained to European financial institutions, some big U.S. banks are monitoring the situation cautiously.

The National Association of Homebuilders’ confidence index hit an all-time high of 85 last month. The November reading is out on Tuesday. Housing starts and building permits for October follow on Wednesday. On Thursday, the October home sales report for the U.S. housing market will be released. As consumer confidence in homebuilding and demand for single-family housing units in more suburban and rural areas have increased during the pandemic, Thursday’s numbers should confirm an increase in the number of home sales and signal sustained demand.

Palo Alto Networks (PANW) kicked off earnings this week with top and bottom-line beats. Shares climbed 7.65 percent on the news. Tyson Foods (TSN) benefited from China driving up global meat prices. It also beat sales and profit estimates. Shares advanced 3.83 percent.

Earnings reports from six major retail companies are due to be released later this week. On Tuesday, Walmart (WMT) and Home Depot (HD), which have been extraordinarily strong performers throughout the pandemic, will publish earnings reports. Target (TGT) and Lowe’s (LOW), relatively smaller retailers with similarly strong performances, will release earnings reports on Wednesday. On Thursday, earnings reports from BJ’s Wholesale (BJ) and Macy’s (M) are due and are likely to reflect disparate results. While Macy’s has struggled majorly both before and during the pandemic, BJ’s Wholesale has experienced surges of 80 percent considering their designation as an essential business and heightened consumer demand for food and other essentials during the pandemic. Overall, expectations are high for mostly positive earnings reports with the consensus that consumer spending and sentiment continues to improve in line with the overall U.S. economic recovery.

With rising coronavirus case counts across the country, the markets reacted well to potential progress for public health initiatives that could hasten the economic recovery and return to pre-pandemic consumer activity, including travel. The stage has been set for value stocks to continue to do well, even amidst the increasing coronavirus case counts. Positive earnings reports due later this week could also help sustain gains across the market, along with promising data expected on October home sales.

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