What would normally take years to develop, research, test, manufacture, and deliver has been condensed into just months. Through Operation Warp Speed, our country has delivered to the world a Christmas gift that will be hard to beat for many years to come. Through a historic partnership between the public and private sector, our medical professionals, President Trump, and his Corona Virus task force have done the impossible in delivering lifesaving vaccines at unprecedented speed.
It estimated that more than 100 million people in the US will be vaccinated (or given the opportunity to receive the vaccination) by the end of February 2021. Vaccines are also being rolled out in Asia, Europe, and the rest of the world. This will put us and the rest of the world well on our way to putting the Coronavirus in our rearview mirror and returning to our normal lives.
The market has been pricing in the coming of the vaccine over the last several weeks, with parts of the market that will benefit from the global demand recovery performing the best. Roughly nine months after the March 2020 lows, the S&P’s advance is remarkably similar to the rallies off both the August ’82 and March ’09 bottoms with all three examples up roughly +60% by this stage. This is exceptional momentum over a relatively short period of time. In both historical examples, the S&P spent the next 12 months (give or take) dancing around the break-even mark before the bull markets reasserted themselves in mid-1984 and late-2010.
At present, sentiment has started to run hot, but our gut says it’s still early to position for a correction with seasonality strong through mid-January and most macro indicators still pro-risk, but would it really be such a surprise if the S&P spends the next 6 or 8 (or longer) plus or minus 10% on either side of say 3700? The headlines from the Energy patch over the last week seem more appropriate of March (Oil at $20) or April (Oil at $0) than they do of today (Oil at $50). Whether it’s the majors taking huge write-downs and cutting capex, or the Banks backing away from financing future projects, stocks right now are acting better than the headlines. Ninety-six percent of Energy issues are above their 200-day moving average, the highest reading in years, and small-cap energy is at 6-month relative highs. Is the sector leadership? Probably not. Has it begun to heal itself? It sure looks like it.
Volatility will continue over the next several months as demand picks up and the Vaccine works its way to establishing global herd immunity. There will be advances and setbacks in the Coronavirus numbers over the next 6 to nine months but we must remember we are headed in the right direction.
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments. Data provided by FactSet.
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