"Short Weeks... are always long." An old Wall Street adage? Yes. Silly, not at all. Here's a little something about Wall Street culture that perhaps most who do something else occupationally may have never thought of. Not complaining, Wall Street has been good to me, just explaining one difference between existing environments on Wall Street and across Main Street that might help explain a few things, such as odd looking spikes in volatility that could come up.
While there is some implication in the meaning of this "old traders' tale" that a holiday shortened work week feels longer, perhaps because traditionally some folks will take off and there is often less trading volume around holidays, that really has little to do with the root of this old saying. This comes from the fact that many financial workers don't work for a base salary. There really are no paid holidays in this game, unless one works for the major brokerages, but that's where you start out, not where you want to end up later in your career.
In fact, many professionals don't have base salaries at all. It's part of the deal. The good thing is that while some laborers who do something else might have an idea of just how much money they make or save for their employers, we're all really mercenaries at heart. We know exactly what we are worth, very often in real-time. Traders, sales-traders, brokers, and the lot often rely solely upon performance, commissions, or some combination of the two in order to provide a living.
What I am saying is that while many in other lines of work see a day off as a reason to celebrate, those who must depend upon either their own performance or commission all know exactly what they need to earn on average per day over the course of a month in order to meet their obligations, and then feed their families. Shorten the number of business days, or meaningful business days existing throughout any billing period, and that number goes up, even as trading volume often goes down. Besides obviously taking personal pressure up a peg or two, this can force an increase in risky behavior as that billing period winds down, and said individuals realize that they must now average some kind of unrealistic number a day over only a few sessions in order to pay the bills. Hence... "short weeks are always long", and sometimes just not long enough.
Obstacle Course
How interesting. Could have been ugly. Probably should have been ugly. Most overtly, the entire world now seems impacted by the spiking and spreading SARS-Cov-2 coronavirus. Even the last holdouts by us on Long Island now seems to be wearing masks. That's a good thing. Too bad "the science" changed their minds on masks so often in the early going, maybe we could have avoided so much societal and economic (as well as personal) damage.
In response to this second or third wave of this awful pandemic, New York City public schools as well as many other school districts have closed yet again for in-person instruction. Curfews are in effect across various regions including California. Bars, restaurants, and gyms where still open are again operating with limited capacities and shortened hours. There's more. The U.S. Treasury called the Federal Reserve. They want their still untapped funds across a number of lending facilities back, perhaps to re-allocate elsewhere. All as folks, and college students travel home for the holiday. Does that cause this current surge to hit a pace of infection still unthought of?
The economic data has been spotty. Housing related data remains strong. That may be a product of urban flight. Away from tight spaces. Away from elevators. Away from pent up anger, or maybe just away from other people as much as possible. Last week, the Fed's first two regional manufacturing surveys sure were inconsistent to say the least. Philadelphia seemed to stay fairly strong, while New York badly disappointed. Retail Sales at the national level for October were disappointing no matter how you sliced them, and weekly Initial Jobless Claims (perhaps the most troubling of data-points) started rising again.
Resilience
Basically, I think we laid out enough reasons for financial markets to revolt, yet they did not. The past week may have seemed a little boring, which is just fine given all of the above. The broadening of market performance, which some have called a "rotation" (but, I do not see it that way) continued on. The S&P 500 gave up 0.8% for the week, while the Nasdaq Composite squeaked out a 0.2% increase. The Dow Transports, S&P 400 (mid-caps), and small caps indices (S&P 600, Russell 2000), all easily outperformed our higher profile large cap indices, even as the U.S. dollar showed weakness that in theory would benefit multinational corporations more than smaller firms that do a more domestic business.
One has to think that this broadening of market performance is based more on the fact that most of what we see in the way of potential vaccines for Covid-19, and now therapeutics as well, has been largely far more positive than expected. This broadening has been for the most part an increase in exposure to the reopening trade, while leaving at least one foot, maybe more than one foot, planted firmly in what has worked throughout this era of stunted economic activity.
Clearly, just glancing at the sector performance tables over the past five sessions, one easily sees that Energy (again), Materials, Industrials, Financials, and Discretionaries all finished the week in the green, while taking the first five spots. All of that action is either predicated on the reopening trade, or a weaker dollar. In his piece at Barron's over the weekend, Ben Levisohn refers to this action as the "vaccine put", and to tell the truth, I wish I had thought of the term before reading him, I thought that he "put" it perfectly.
Even isolating industry groups within the Information Technology sector is telling. While the Technology Select Sector SPDR ETF (XLK) turned in a negative (-0.9%) week, the Philadelphia Semiconductor Index roared 1.9% higher, while the Dow Jones US Software Index languished a bit (-0.6%), but still outperformed the ETF, and the Dow Jones Computer Hardware Index was hit rather hard (-1.4%) as that is where one finds Apple (AAPL) , which gave up 1.6% for the period all by itself. That's an under the radar 'economic growth' or commodities-type trade.
Safety Net
So, why the stubborn resilience in the face of mounting negative looking input? Where do we begin? The vaccine candidates, that's where. First there's the collaborative effort between Pfizer (PFE) and BioNTech (BNTX) that first appeared to be 90% effective, then 95%, while at least in the early going also seems rather safe. Pfizer has now applied to the FDA for "Emergency Use Authorization", the downside for this particular vaccine would be the requirement for ultra-cold storage temperatures that would present as a logistical difficulty.
That said, Pfizer is not alone. Moderna (MRNA) released interim data from their Phase 3 trials that also showed incredible efficacy (94.5%) and also seems safe. Moderna's entry will only require household levels of refrigeration, and that is a big deal. Moderna will likely apply for an "EMU" from the FDA by the end of November. Over the weekend, Moncef Slaoui, who heads President Trump's "Operation Warp Speed", told the media that he hopes to start immunizing people across many states as soon as December 11th or 12th after an FDA panel set for December 10th meets and if that meeting goes well. Varying plans show an effort to get the vaccines out to the first 30 million Americans or so by year's end, and as much as 70% of the population by this spring.
In addition, more positive information was released on Monday morning by AstraZeneca (AZN) and the University of Oxford that showed when vaccinated in a certain way, and not another... that their vaccine candidate could be 90% effective. Recall that all three of these vaccines require two doses about a month apart, but that Pfizer and Moderna both pursued Messenger RNA technology which is experimental, while AstraZeneca used a viral vector technology derived from a similar coronavirus found in chimpanzees. Why is that difference such a big deal... for investors? This is why: If Messenger RNA technology, in other words, if changing the instructions naturally found inside the human body can be edited in order to fend off this particular disease, then what can science not take on moving forward? I am not kidding. This may be up there with the greatest inventions in the history of the human race. Sanitation? Controlled electricity? Air Conditioning? Disease control? I'll take door number four.
On That Note...
Most readers probably know by now that Regenron (REGN) received an "Emergency Use Authorization" form the FDA for their "cocktail" drug which is a combination of two antibodies meant to enhance an infected person's ability to defend him or herself from the virus. This is the drug that the president was given when he fell ill, and let's be honest... for an older, overweight guy, he sure had a lot of energy going into the election, far more than anyone had a right to expect. This therapeutic is delivered one time through an IV, and targeted at patients with mild to moderate symptoms prior to those symptoms worsening.
This comes in addition to the mono-antibody treatment that the folks at Eli Lilly (LLY) came up with. That particular therapeutic had already gained an FDA "EMU" and was used on former New Jersey Governor Chris Christie, who appears to be doing well after the fact. Christie, who is not elderly, is well into being middle aged, is overweight, and if I recall correctly has said himself that he has or had asthma. Do these drugs work? The sample size is small, but if so, a dark cold winter might end up being just a little less dark, or maybe a little less cold.
Buying On The Dip
Who is going to help the U.S. Army distribute all this medicine? FedEx (FDX) , United Parcel Service (UPS) ? Sure. Both are going to help with getting mass quantiles to thousands of locations. CVS Health (CVS) , Walgreens Boots Alliance (WBA) ? Oh, yeah, many of you will wait in line at your local pharmacy very soon. All of these firms have come under pressure at one time or another thanks to the Death Star, I mean Amazon (AMZN) . Amazon can do a lot. They can not do this though.
I speak today of McKesson (MCK) , a recent addition to the Goldman Sachs (GS) "Conviction Buy List". McKesson was chosen early on by "Operation Warp Speed" to help with distribution and storage of the vaccines and therapeutics that we have been discussing. The shares have been smashed since Goldman's addition, closing close to the highs of late February, while technically closing the gap created in very early November. I have already initiated this long, and expect to add at least down to the 50 day SMA (157) on any continued weakness. My target price is $210, based on a $172 pivot.
Economics (All Times Eastern)
09:45 - Markit Manufacturing PMI (Nov-Flash): Expecting 52.8, Last 53.4.
09:45 - Markit Services PMI (Nov-Flash): Expecting 55.4, Last 56.9.
The Fed (All Times Eastern)
13:00 - Speaker: San Francisco Fed Pres. Mary Daly.
15:00 - Speaker: Chicago Fed Pres. Charles Evans.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (KFY) (.05), (WMG) (.04)
After the Close: (A) (.93), (URBN) (.44)
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