Switzer on Saturday

Vaccine rally comes, goes and comes again. Yahoo!

Founder and Publisher of the Switzer Report
Print This Post A A A

This week we’ve seen a window on the future where a vaccine is well and truly in place and people are being jabbed. And it’s all about a rotation of stocks, which is happening, powered by the Pfizer news of a 90% effective vaccine.

What we saw was the reopening trade stocks gain as the previously very popular stay-at-home stocks lost friends. Another insight we saw through this window was how the sold-off stocks bounced off excessive dumpings.

US share markets rallied to record intra-day highs on Tuesday, after Pfizer’s large-scale coronavirus vaccine study delivered promising results.

What we’re witnessing is a resetting process back to normalcy and the smart short-term trader will have sold off a stock like Afterpay, as US tech stocks were dumped on Monday their time. Then that trader might have bought back in to make money out of the overreaction. Let’s see if the chart shows that.

Afterpay (APT) Five Days

Yep, that’s exactly what happened, though this bounce-back could’ve been helped by the hopeless performance of the US in controlling the virus. The Yanks have had nine days straight of infections over 100,000 plus so lockdowns and restrictions are happening, albeit not as bad as earlier this year. But these lockdowns will affect business profits and share prices, especially for the reopening trade stocks.

The magnitude of existing and potential lockdowns should have a negative impact on US economic growth and corporate profitability, but Goldman Sachs has come out and reaffirmed its 5.2% growth rate for the US next year. Let’s hope they’re right.

Keeping it more positive than you’d think possible with the terrible infection rates, is the surprisingly good economic data and earnings, which are always critically important for playing stocks.

The fact that Wall Street was up overnight and energy and financials (value and cyclical stocks) have done best this week shows that the market believes the vaccine will make a big difference in 2021. This has meant that growth stocks like those popular tech businesses have lost ground over the trading days since Pfizer went public with its news.

By the way, the energy sector was up over 16% for the week, the biggest rise over a week, wait for it, ever! That shows a lot of belief that a vaccine will speed up the arrival of normalcy in our lives.

And if the infection rates were much lower in the US with Christmas or “the holidays”  looming, retail stocks would even be higher. A stock like department store Nordstrom has been up and down between $15 and $17 but was up over 9% on Friday, which says the infection-economic concern isn’t rising and augurs well for reopening trade stocks.

The infection-economic effect is an important issue to watch and will determine where stocks go. At the moment, the market is looking through the current infection spikes but must believe a vaccine will be the gamechanger relatively sooner rather than later. The chart above shows how the one-time V-shaped recovery looks like a Nike-swoosh recovery, which I speculated on some months ago. A vaccine would turn that now slightly dipping blue line up.

To the local story and the S&P/ASX 200 spiked 215 points (or 3.5%) to end at 6405.2. And it was the vaccine good news story that was the main game for stock players. Stay-at-home stocks copped it, while reopening trade stocks soared.

Banks were big winners, with CBA up 4.8% to $73.14, NAB was a darling up 8.3% to $21.20, ANZ rose 5% to $20.58, while Westpac dragged the chain, up 3.2% to $18.34. This is not only a classic rotation trade but the better economic news (see below) plus the vaccine positivity means that the banks will perform better in 2021. This could be good news for dividend hunters.

It was a good news week for a number of stocks I’ve liked on a reopening play, with Webjet up 17.9%, Corporate Travel rose 14.8% and Flight Centre put on 11.8%.

As I’ve said, the vaccine news is good for the economic recovery of 2021 and that’s why the oil price helped Woodside jumped 13.3%, Santos 18%, Oil Search 30.2% and Beach Energy rose 23.9%. Those who watch my Monday TV show know we’ve been talking most of these stocks up, though the rise is faster than I expected.

God bless vaccine news.

Stay-at-home stocks such as Woolies lost 2.3%, JB Hi-Fi was down 6% and Kogan slumped 18.4% but it would’ve been bigger if the vaccine availability was just around the corner. One day, these types of stocks will go lower and there will be an overreaction, which I will say is a buying opportunity. But that’s not now.

What I liked

  • The Pfizer vaccine story and now the S&P 500 first quarter earnings forecast for 2021 has gone from 11.8% a month ago to 15.2%! That’s positive for stocks.
  • The monthly Westpac consumer confidence reading rose by 2.6% in November, lifting from 105 in September to a 7-year high of 107.7 points.
  • The weekly ANZ consumer confidence rating rose by 3.2% (the most in 11 weeks) to a fresh 8-month high of 103.1.
  • The NAB business confidence index rose from -3.8 points to a 17-month high of 4.7 points in October.
  • The business conditions index lifted from -0.2 points to 10-month highs of 1.5 points.
  • Loan deferrals at CBA have fallen to just 2.9% of the bank’s total book, as of October 31. These were 10.8% when the virus was at its worst.
  • Home loan deferrals fell to 46,000 with a value of $19 billion, down from the June peak of 125,000, with a value of $49 billion.
  • The CBA says card spending in the week to November 6 lifted by 13.2% on a year ago, compared to a 5.7% lift for the previous week.
  • European Central Bank President Christine Lagarde said policymakers will focus on more emergency bond purchases and cheap loans for banks, when it puts together its new stimulus package next month.

What I didn’t like

  • Small business loans totalled $142.5 billion at the end of September, down 0.9% in the month and down 0.9% for the year. (That annual drop is pretty small.)
  • American depositary receipts (ADRs) of Alibaba tumbled 8.3% after China tightened the scrutiny over internet behemoths. (Beijing is in a dirty mood — they’re acting like Communists!)
  • America’s second-wave infections! And let’s throw in the poor performances in the UK and Europe.

What I loved

Look at the consumer and business data in my “What I liked” section above. We’re seeing 7-year, 17-month and 10-month highs, which is saying that the economy is feeling better than it was before the Coronavirus arrived! And this chart tells a great story that will only be boosted ‘big time’ by the opening of borders.

Then after that we need to see a vaccine open international borders that will push that blue line above the zero line and then above where the economic activity tracker reading was before the pandemic was declared. And all this should underpin a good year for stocks in 2021!

The week in review:

Our videos of the week:

Top Stocks – how they fared:

The Week Ahead:

Australia
Monday November 16 – Reserve Bank Governor Lowe speech
Tuesday November 17 – CBA Household Spending Intentions (September)
Tuesday November 17 – CBA credit & debit card spending (November 13)
Tuesday November 17 – Weekly consumer sentiment (November 15)
Tuesday November 17 – Reserve Bank Board meeting minutes
Tuesday November 17 – Weekly Payroll Jobs and Wages (October 31)
Tuesday November 17 – Reserve Bank Assistant Governor Kent speech
Wednesday November 18 – Reserve Bank Governor Lowe speech
Wednesday November 18 – Wage Price Index (September quarter)
Thursday November 19 – Labour force (October)
Friday November 20 – Preliminary retail trade (October)
Friday November 20 – State accounts 2019/20

Overseas
Monday November 16 – China Retail/production/investment (Oct., annual)
Monday November 16 – China House price index (October, annual)
Monday November 16 – US NY Empire State manufacturing index (Nov.)
Tuesday November 17 – US Retail sales (October)
Tuesday November 17 – US Import/export prices (October)
Tuesday November 17 – US Industrial production (October)
Tuesday November 17 – US Business inventories (September)
Tuesday November 17 – US NAHB Housing Market index (November)
Wednesday November 18 – US Housing starts & building permits (October)
Thursday November 19 – US Existing home sales (October)
Thursday November 19 – US Philadelphia Fed manufacturing index (Nov.)
Thursday November 19 – US Conference Board leading index (October)

Food for thought:

“Never test the depth of the river with both of your feet.” – Warren Buffett

Stocks shorted:

ASIC releases data daily on the major short positions in the market. These are the stocks with the highest proportion of their ordinary shares that have been sold short, which could suggest investors are expecting the price to come down. The table shows how this has changed compared to the week before.

Chart of the week:

The S&P 500’s 7.3% gain last week was the index’s best performance during election week since 1932 as shown in this chart from Statista:

Top 5 most clicked:

Recent Switzer Reports:

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.