16 Nov SpringTide Weekly #79: Covid surge, vaccine hope and value’s comeback
Below are some market highlights from the last week and a few things we are working on.
New Covid-19 cases and hospitalizations are surging, rolling lock-downs and school shutdowns are sweeping Europe and the U.S., and restaurants are being forced to close as outdoor dining becomes less practical. The Fed is injecting $120 billion per month into asset markets (Treasuries and MBS). That may help the stock market, but without fiscal support, higher asset prices will have a little, if any, impact on the thousands of small businesses that face extinction this winter.
The gap between Senate Republicans, who want a “targeted” bill, and House Speaker Pelosi, who wants scale (at least $2.2 trillion) remains as wide as it’s been for months. Both sides also don’t know if they will gain or lose leverage at the crucial Georgia runoffs on January 5. In spite of this backdrop, the S&P 500 is up 12.8% for the year (through Friday) and hovering around all-time highs.
Value stocks were given a jolt last week by the news that the Pfizer-BioNTech vaccine may be up to 90% effective. (Stock futures are surging this morning on similarly positive news from Moderna.) In fixed income markets, the yield on the 10-year Treasury has been trending higher in recent weeks as markets prepare for an onslaught of expected issuance in the coming months (over $1.1 trillion in the first quarter alone).
We are in for a winter of profound uncertainty; worry in the short-term but with longer-term hope.
New cases are surging, especially in the U.S. and Europe. Saturday was arguably the worst day ever for the pandemic in the U.S. as new cases and hospitalizations both hit new highs.
We believe hospitalizations remain the key trend to watch in terms of policy response/ consumer reaction. As hospital capacity becomes an issue, new lock-down announcements almost inevitably follow.
Germany and France announced lock-downs two weeks ago, a curfew for bars and restaurants in New York State started Friday, and Chicago’s updated stay-at-home order goes into effect today.
Re. the policy response/ consumer reaction, economic activity across the U.S. and Europe is slowing dramatically.
THE BEST DAY FOR VALUE IN 75 YEARS
The vaccine announcement last week triggered a sharp reversal in value vs. growth stocks. Below are relative performance spreads for several representative value/growth pairs for last Monday (i.e. energy stocks outperformed technology stocks by 14.9%).
Here’s an amazing stat via Eddy Elfenbein: the S&P 500’s 10 worst-performing stocks year to date (through November 6) were up an average of 23% last Monday and Tuesday.
According to SentimenTrader, last Monday saw the largest one-day outperformance by value in 75 years (based on S&P index data).
Our view: The recent “reversal” in value vs. growth really started back in September. Last week just accentuated the move. This dynamic is very closely tied to the trajectory of the virus. If markets continue to price-in a recovery, we should see more strength in value.
Here’s a slide from our recent Growth vs. Value Trends report.
Is this the start of a broader, longer-term trend? We don’t know for sure, but when the topic turns into a joke, you have to think we’re getting close to a sustainable turn (?).
INTERESTING RESEARCH WE READ, LISTENED TO OR WATCHED
- WSJ: Value Stocks May Have Done a Lot Better Than You Think: Link
- ECRI’s Lakshman Achuthan: Brace for Inflation: Link (podcast), slides
- Reuters: Why Pfizer’s ultra-cold COVID-19 vaccine won’t be at the local pharmacy soon: Link
- MyJournal: Top CEOs met to plan response to Trump’s election denial: Link
- NYT: Pfizer’s Covid Vaccine: 11 Things You Need to Know: Link
- Bloomberg: Yellen Under Consideration by Biden Team for Treasury Chief: Link
- THR: In This Market, ‘Good News Can Actually Lose You Money’: Link
The SpringTide Investment Team
SpringTide Partners, LLC is a Registered Investment Advisor with the state of Illinois and other states jurisdictions where required. Registration with the SEC or any state securities authority does not imply a certain level of skill or training. All information contained herein is for informational purposes only and does not constitute a solicitation or offer to sell securities or investment advisory services. All investing carries risk including risk of principal loss. All statements made on this website are opinions of SpringTide Partners, LLC and are subject to change. SpringTide Partners, LLC assumes no responsibility for the accuracy of the data included. Statements made on website shall not constitute investment advice.