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“Things are not always what they seem; the first appearance deceives many; the intelligence of a few perceives what has been carefully hidden.” – Phaedrus
In yesterday’s Chart of the Day (“Monday Night is Bull Time“), we noted that when you look at historical market returns based on after-hours and regular hours performance and then further break down those returns by the day of the week, the best time to be long the market has historically been from the close on Monday to the open on Tuesday. There’s still an hour left until the opening bell, but based on where futures are trading this morning, that strategy appears to have worked last night.
The catalyst for this morning’s move in futures is news that while he has yet to concede, the President instructed GSA to allow for the beginning of the transition process. Global equities around the world have also been rallying with a general risk-on sentiment, and in Germany, Q3 GDP showed a stronger than expected bounce from Q2’s plunge. On a side note, Germany’s benchmark DAX index will also be expanded from 30 to 40 companies.
Be sure to check out today’s Morning Lineup for a rundown of the latest stock-specific news of note, the Nikkei’s surge to multi-decade highs, European economic data, trends related to the COVID-19 outbreak, and much more.
Also, we had a segment on CNBC earlier this morning discussing the market’s current backdrop and what to expect going forward. Give it a watch (CNBC Interview – 11/24/20) if you have the time.
With COVID cases surging throughout the country, it has been surprising for traders and investors to see the stocks that originally benefitted the most from COVID basically flatlining after their surge from the March lows through late Summer. The chart below shows the performance of our “Stocks For the COVID Economy” basket since the start of March. The basket’s performance has basically been moving sideways for the last three months after its late Spring/Summer surge.
On a relative strength basis versus the S&P 500, COVID stocks steadily outperformed the S&P 500 right up until October, but just as case counts surged, the COVID stocks fell off a cliff relative to the S&P 500 (chart below). The assumption here was that despite the third wave, investors were looking past the bad news (in the present) and forward to the Spring when case counts would likely decline and vaccines would be rolling out. Ironically, though, Pfizer’s (PFE) vaccine announcement on 11/9 represented what has been a short-term low for the relative strength of the COVID stocks versus the S&P 500. In fact, since the close on 11/9 (a day when the COVID stocks underperformed the S&P 500 by a wide margin), the S&P 500 is up less than 1% while the average return of the COVID stocks is a gain of 4.6%. Just as with a lot of other areas of life, things are not always as they seem.