Nov. 16, 2020 - This week's opening session seems like a muted version of last week's.
A positive announcement about a coronavirus vaccine, from Moderna (MRNA) this time, set off a rally in the "re-open" trade (Energy, Industrials) while the tech stocks and some of the "stay at home" plays fell.
As we discussed on Friday this pattern is likely to go back and forth with the opposite trend for a while.
The market's optimism comes from seeing a light at the end of the tunnel. Harder to parse out is the fact there is still some amount of tunnel left. New lockdowns are being announced as case counts continue to rise, and this seems almost certain to have a big impact on the holiday shopping and travel season.
Jon Turek, of the blog Cheap Convexity tweeted a better version of this tunnel analogy earlier Monday:
What we've seen across markets for the past several weeks is that the trends that persisted from the Spring low until very recently have reversed themselves. The VIX is pushing lower, the yield curve is flattening and value stocks are showing signs of life at the expense of some of 2020's hottest momentum plays. This is a bet on an end to the pandemic even as the virus is more wide-spread than ever.One of the clear trends right now is the broad reduction in risk premium. Between reducing left tails via policy intervention & the prospect of a cyclical recovery via a vaccine, risk is trading like it's exhaling. In the "path v destination" dichotomy, latter is firmly in focus.
— Jon Turek (@jturek18) November 16, 2020
The big question facing investors for the next few weeks will be "How long can the market keep it's eyes on the destination?"
There are already hints that the economy is weakening, although it hasn't shown up in very many of the official reports yet. With new lockdowns, and likely a large number of consumers opting to limit their activities for a while regardless of lockdowns, it seems likely the recovery will continue to slow down.
There are several other vaccine trials currently underway, and the two that have released preliminary data so far still have several other milestones to hit.
Whether or not the stream of vaccine news can help the market focus on the destination without getting distracted by a darkening path will be the question as we heading into the holidays.
Economic Events this Week
Tuesday- 8:30 a.m. - Retail Sales
- 8:30 a.m. - Import/Export Prices
- 9:15 a.m. - Industrial Production
- 10:00 a.m. - NAHB Housing Market Index
- 8:30 a.m. - Building Permits
- 8:30 a.m. - Housing Starts
- 8:30 a.m. - Initial Claims
- 10:00 a.m. - Existing Home Sales
- Nothing Scheduled