by Blaine Dickason
Vice President of Trading and Fixed Income Portfolio Management
2020 has been such a challenging year for so many, so on this Thanksgiving weekend we offer our thanks to all the healthcare workers who have provided comfort to so many amidst the COVID-19 pandemic. We are also thankful for all the researchers and volunteers who appear to have us at the doorstep of widely available vaccines with the corresponding hope for a return to normalcy. True to form, financial markets have already begun anticipating what a post-vaccine world will look like and asset prices have responded accordingly.
The prospect of a successful vaccine has allowed investors to foresee a return to more normal levels of economic growth. From our still-depressed levels, the current recovery is likely to follow an early-cycle playbook of rewarding cyclical sectors and smaller companies. While many asset classes have rallied strongly from their springtime lows, the three weeks since Pfizer’s positive vaccine news was released have seen notable stock performances, both in absolute and relative terms. The chart below shows the wide dispersion in stock returns from the Friday before the Pfizer announcement through the day before Thanksgiving.
Year-to-date performance in the S&P 500 has been led by a small number of mega-cap growth companies. With the prospect of growth broadening out throughout the economy, the ‘scarcity of growth’ phenomenon that contributed to the stellar performance of these mega-caps may have lost its luster. Many of these stocks subsequently traded lower after the first vaccine announcement from Pfizer was released in a sign our previously ‘narrow’ market may finally be seeing wider gains.
Trailblazer 2.0
This week, President-Elect Biden announced that he plans to nominate former Fed Chair Janet Yellen to become the first ever female Treasury Secretary since that Department’s founding in 1789 when Alexander Hamilton first assumed the post. She had previously broken barriers in 2014 when she became the first female Chair of the Federal Reserve since that institution’s founding in 1913. Former Fed Chair Yellen is a well-known figure, both in Washington D.C., and by the financial markets. Investors may even recall the strong stock market performance that coincided with her four-year term as Fed Chair (February 2014 – February 2018) when the S&P 500 posted total annualized returns of over 14 percent.
While the nomination of Janet Yellen appeared to be favorably received by markets, some of the positive reaction, such as the dramatic outperformance of the financial sector soon after the announcement, may partly have been a consequence of who wasn’t nominated. Compared to other candidates who may have brought a stronger regulatory agenda, Yellen’s experience and focus on the recovery of the U.S. economy following the Great Financial Crisis may be most relevant as we emerge from our current health crisis.
Week in Review and Our Takeaways:
The Dow Jones Industrial Average traded and closed above 30,000 for the first time ever on Tuesday, November 24
Home prices rose 6.96 percent year-over-year according to the S&P Corelogic Case-Shiller National Home Price Index released this week for the month ending September 2020