July 20, 2020 - Today's rally is maybe one of the more interesting we've seen recently.
This morning brought positive news from two separate vaccine trials. The market's initial reaction was muted, followed by a rally in the afternoon.
What makes the rally so interesting, is that it wasn't a rally in the stocks you'd expect to rise on this kind of news.
Yes, the companies behind the vaccine candidates rose, but the afternoon's rally was powered by the mega-cap tech names that lead the initial market rally in March. We talked in our workshop last week about the "reopening trade", that is, stocks are bets on the economy reopening sooner, rather than later.
These stocks, which are things like airlines and cruise ships, didn't rally Monday. What rallied Monday were the big-name tech stocks that we identified as the other side of the reopening trade, the so-called "stay-at-home" stocks. These are big tech companies and other bets that people won't be traveling or gathering anytime soon.
Let's consider a few pairs of stocks that we would normally put in the same basket, but fall on different sides of the at-home/re-open line.
Peleton (PTON) which makes expensive exercise bikes that are connected to instructors via the internet, up nearly 11% today. Planet Fitness (PLNT), a traditional gym chain, down 2.4%. Amazon (AMZN), the ultimate stay-at-home stock, rose 8% Monday, while Target (TGT) lost 1.4%.
This is very different from how the market has reacted to previous positive vaccine trials. These results aren't different enough from previous results for us to draw any conclusions about the quality of these particular vaccines, so we're not entirely sure why the market's reaction was so different.
Monday's rally also served as a reversal of last week's trend, where tech stocks under-performed. It's possible Monday's reversal was more technical, and not related to the vaccine trials, but it still seems odd that re-opening stocks didn't rally on the news.
This is a busy earnings week, and we expect last week's trend of warnings about the future to continue.
The other story market participants will be keeping a close eye on is the talks in Washington about new economic stimulus measures. Many of the current programs, including enhanced unemployment benefits, are expiring at the end of this month. Those programs have kept consumer spending high despite millions of Americans losing their jobs during the crisis. This week is likely a prelude to a slowdown next week when the deadline is actually much closer, but expect a rally if Congress manages to make a deal well ahead of the deadline.
Economic Events this WeekWednesday
- 7:00 a.m. - MBA Mortgage Applications Index
- 10:00 a.m. - Existing Home Sales
- 10:30 a.m. EIA Crude Oil Inventories
- 8:30 a.m. - Initial Claims
- 10:00 a.m. - New Home Sales