For the second day in a row, equities opened lower on Wednesday, then dusted themselves off, with a little help from Jerome Powell (not to mention the yield curve), and then rallied for the rest of the session. Only Wednesday's rally was broader and felt more complete than Tuesday's. The fact was that while the Fed Chair certainly gets an assist and what the US 10 year pays did peak early in the day, the catalyst on Wednesday was not a smooth talking monetary dove, not the fact that even easier fiscal conditions are at least (probably) headed for a vote in the House later this week. The catalyst had everything to do with the virus, or should I say... optimism that humankind might stuff that scourge back into Pandora's box, and hopefully slam the lid shut as soon as possible.
The headline circulated by the FDA shouted good news from the heavens... "Johnson & Johnson's (JNJ) single dose Covid-19 vaccine candidate is effective and is safe, and best of all... appears ready for an "Emergency Use Authorization." The final vote on adding a third vaccine to the U.S. arsenal is expected this Friday (tomorrow). JNJ's vaccine is different from the first two already in U.S. circulation as both the Pfizer (PFE) / BioNTech (BNTX) and Moderna (MRNA) vaccines use what was at the time experimental messenger RNA technology. JNJ's shot is an adenovirus-based vaccine, does not require commercial refrigeration, and requires only one shot, hence a potential game changer.
The downfall, if one calls it that, is that messenger RNA technology based vaccines have proven so far to be incredibly effective, with the rates of protection believed to be in the mid-90%'s. JNJ's jab in clinical trials showed efficacy rates of 72% in the U.S., 66% in Latin America, and 57% in South Africa. Remember, prior to the advent of messenger RNA technology, 50% was considered "good enough" for vaccines under development, and 57% versus the South African variant might just be what keeps humankind on track for broad economic, mental, and spiritual recovery. In addition, in trials, JNJ's vaccine has proven so far to be 100% effective at preventing both hospitalization and death, even in South Africa. There were also zero cases of severe allergic reaction across the JNJ trials. Positive indeed. But wait... there's more.
Just as Johnson & Johnson prepares to enter the arena, those already engaged in battle are refocusing on new targets identified and adjusting fire appropriately. While Moderna shows through initial data that the firm's original Covid-19 vaccine does protect against new mutations of the virus, that "out of an abundance of caution", the firm has already developed and shipped to the National Institutes of Health doses of a new version of this vaccine specifically targeting the South African variant for testing.
As all of this was going on, Pfizer chief scientist Mikael Dolsten spoke at the virtual Barron's Healthcare Roundtable event. Dolsten spoke of novel oral and intravenous Covid-19 therapeutics that will act against all mutations of this virus, as well as a wide variety of coronaviruses. Pfizer already has one treatment in Phase 1b trials, and is expecting the new candidate to enter Phase 2/3 clinical testing sometime during the second quarter of this year.
And We Don't Worry 'Bout Tomorrow...
... Cause we're sick of these four walls. Now what you think is nothin' might be somethin' after all. (Van Halen, Van Halen, Roth, Anthony)
One thing about Wednesday's rally that stuck out was just how broad it was. The Dow Industrials, Dow Transports, S&P 400, 500, and 600, Nasdaq Composite and 100, and Russell 2000 all gained somewhere between 0.81% to 2.38% for the session with the larger gains weighted toward the smaller caps and the transports. That, my friends... screams of the coming of improved economic growth from the mountain tops.
Nine of 11 SPDR sector select ETFs colored themselves green for the day, with five of these ETFs sporting increased greater than one percent. The six top performers were all either cyclicals (Energy, Financial, Industrial, Discretionary, and Materials) or growth (Technology). Side note... many still consider Technology to be a cyclical sector, I do not. I have graduated both Technology and Communication Services to their own category, and labeled them both simply "growth" as demand for what these groups provide is now (in my opinion) secular in nature. Wednesday's sector performance tables did have two losers... both defensive... Staples and Utilities.
Interestingly, over the past two days, the DJIA, S&P 400 and S&P 600 have all found precise technical support at their individual 21 day EMAs, while the S&P 500 and Philadelphia Semiconductor Index both found similar support at the 50 day SMA. Support was also found, albeit in sloppier fashion for the Russell 2000 around the 21 day EMA, and both the Nasdaq Composite & Nasdaq 100 around the 50 day SMA. You know there's a but coming right. Whenever there is an overwhelmingly positive day, there's always a big but somewhere.
Breadth was spectacular on Wednesday. Winners beat losers by almost 2 to 1 at the NYSE and almost 3 to 1 at the Nasdaq. Advancing volume trounced declining volume by more than 3 to 1 at both of our primary exchanges. That said, and you hate to see this on such a positive day... aggregate trading volume tailed off quite significantly across the entire equity landscape. Total trading volume on Wednesday ended a rough 6.5% lower for NYSE listed names than it had on Tuesday, and an incredible 24% lower for Nasdaq listed names from the one day to the next.
What does that mean? I think it means that while many algorithmic traders chased each other up the mountain on Wednesday that a lot of professional managers were much less aggressive. This group either thinks that they'll get another chance, or that the rally was misplaced. Perhaps there is a "sell the news" event expected should the Biden stimulus plan pass the House. I can't tell you. I can just tell you that the pros are either not on board or they are going to be late.
The CFO resigned, effective sometime in March. That however, was Tuesday's news. GameStop (GME) roared over the final 90 minutes of Wednesday's regular session... powering right through a couple of regulatory trading halts for volatility. The go-go crowd snapped up out of the money call options and the whole ball of wax started rolling once again.
The stock closed at $91.71, up 104% for the day, and kept on going in after hours trading. This morning, as I finish up this piece, I see the shares trading in the mid-$140's. I did see them trading in the $170's last night. I did sleep for a few hours. Who knows if the action actually paused at any time?
Expect this story to draw more than its fair share of attention from the media on Thursday. If not part of the go-go crowd, the easy money is made in these names through writing ridiculously out of the money puts if the premium is there. That's how I profited from this name last month. While GameStop is the obvious "Bugs Bunny" in this show, the rest of the cast will also bounce around. Expect to see bazaar action today in AMC Entertainment (AMC) , Blackberry (BB) , Bed Bath & Beyond (BBBY) , etcetera, etcetera.
I will keep this very short as I have been featuring Nvidia (NVDA) all week. Nvidia crushed earnings, crushed sales, and crushed guidance. Nvidia seems to be doing everything correctly in my opinion and will go into detail if asked. The bottom line is that I have already added on Wednesday weakness even though the name trades well above my net basis. Would I like to see the shares take off on Thursday? Sure. Would I selfishly like to see some professional profit taking in the wake of last night's release? You bet. I will add further on further weakness. I see nothing at all that would provoke a sale on my behalf. There are only a few CEOs that leave me stunned by their brilliance. Jensen Huang is one of them.
One Last Thing
I see the US 10 Year Note paying more than 1.44% this morning. You don't need your helmet just yet, but keep your flak jackets on, and your helmet nearby. Boonie caps for now. That'll at least keep the sun and the spiders off of your neck.
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Last 861K.
08:30 - Continuing Claims (Weekly): Last 4.494M.
08:30 - Durable Goods Orders (Jan): Expecting 1.1% m/m, Last 0.2% m/m.
08:30 - ex-Transportation (Jan): Expecting 0.6% m/m, Last 0.7% m/m.
08:30 - ex-Defense (Jan): Expecting 0.3% m/m, Last 0.5% m/m.
08:30 - Core Capital Goods (Jan): Last 0.6% m/m.
08:30 - GDP Growth (Q4-rev): Flashed 4.0% q/q SAAR.
10:00 - Pending Home Sales (Jan): Expecting 0.0% m/m, Last -0.3% m/m.
10:30 - Natural Gas Inventories (Weekly): Last -237B cf.
11:00 - Kansas City Fed Manufacturing Index (Feb): Expecting 17, Last 22.
The Fed (All Times Eastern)
08:30 - Speaker: Atlanta Fed Pres. Raphael Bostic.
11:10 - Speaker: Reserve Board Gov. Randal Quarles.
12:00 - Speaker: Atlanta Fed Pres. Raphael Bostic.
15:00 - Speaker: New York Fed Pres. John Williams.
Today's Earnings Highlights (Consensus EPS Expectations)