Vaccine can be a powerful word. It’s worth 14 points in Scrabble (42 on a triple word square) and, last week, it was worth a whole lot more than that to financial markets.
On Monday, a pharmaceutical company and a biotech company announced preliminary trials of their vaccine show it may be 90 percent effective, reported Financial Times. The revelation conjured tantalizing visions of a future in which virus precautions are unnecessary and life returns to normal.
Around the world, pandemic-fatigued populations cheered and markets rallied. CNBC reported:
“The Dow was up nearly 3 percent, while Nasdaq fell 1.5 as laggard sectors like energy and financials outperformed tech. Stay-at-home plays…were sharply lower, but airlines rallied 16 percent. The S&P energy sector, still down 45 percent this year, was up more than 14 percent, and financials were up 8 percent.”
As demand for risk assets, like stocks, increased so did bond yields. In the United States, the yield on 10-year Treasuries rose to 0.97 percent. Rising long-term interest rates caused analysts to speculate about the possibility of inflation and stagflation (rising prices during a period of weak economic growth), reported Barron’s.
Mid-week, enthusiasm moderated. While investors remained confident a vaccine could lead to economic recovery over the longer term, concerns about the shorter-term took center stage. Markets retreated a bit as investors mulled:
Market volatility is likely to persist. Stay calm and don’t let short-term events jar you from your long-term financial goals.
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, MarketWatch, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
IS VALUE INVESTING MAKING A COMEBACK? In 1949, Benjamin Graham, who is known as the father of value investing, penned The Intelligent Investor. His book offered insights about how to reduce the risk of loss when investing in stocks.
Graham encouraged investors to understand a stock is more than a ticker symbol. Stockholders are owners of businesses that have underlying value, and that value does not depend on its stock price. He believed investors should purchase shares when a stock is trading below the underlying worth of the business. Value investing is all about looking for bargains, for diamonds in the rough.
Value investing is often discussed in tandem with growth investing.
Growth investors are less concerned about share price and more concerned about above-average earnings growth. They invest in companies that are expected to grow quickly and deliver impressive returns as a result of that growth.
Value investing has had a rough decade. Despite a long history of outperformance – from 1983 through 2019, the FTSE Russell 1000 Value Index outperformed the Russell 1000 Growth Index – value has underperformed since the 2008 financial crisis.
Last week, there was a move from growth-oriented stocks into value-oriented stocks. The Economist explained, “In the past week or so, fortunes have reversed. Technology stocks have sold off. Value stocks have rallied, as prospects for a coronavirus vaccine raise hopes of a quick return to a normal economy. This might be the start of a long-heralded rotation from overpriced tech to far cheaper cyclicals – stocks that do well in a strong economy. Perhaps value is back.”
Time will tell.
Weekly Focus – Think About It
“The vaccine news airlines have been waiting for arrived this week, raising hopes for a recovery in passenger air travel – but only if the crippled industry can muster the resources to deliver billions of life-saving doses to the world…Just providing a single dose to the world’s 7.8 billion people would fill 8,000 747 freighter planes…”
—Joann Muller, Axios News, November 13, 2020
Daniel J. Murphy, CFP®
Murphy Wealth Management Group
60 Merritt Blvd., Suite 106
Fishkill, NY 12524
P.S. Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added
Securities offered through LPL Financial
Investment Advice offered through Murphy Wealth Management Group, INC, a Registered Investment Advisor and separate entity from LPL Financial