Stocks were set for a strong open this morning due to follow-through of last week's momentum, but surprisingly good news from Pfizer (PFE) about a potentially effective Covid-19 vaccine triggered a frenzy of buying at the open.
Stocks were already quite extended and there already has been a high level of economic optimism, that resulted in a lack of chasing of the strength after the big open. There were many comments about how positive this vaccine news was, but the problem is that many of the leading stocks have been running on the basis that the Covid crisis was good for business. These "stay at home" stocks were sold hard and it was made even worse, as many market participants were not expecting the vaccine news at this point.
There was massive rotational action out of big-cap technology and "stay at home" names that have outperformed for months and into "value" names and "reopening" stocks that have been lagging. Sectors like financials, shown in the Financial Select Sector SPDR fund (XLF) -- and energy -- shown in the Energy Select Sector SPDR Fund (XLE) -- did very well, while the Nasdaq 100/Invesco Trust (QQQ) -- which is heavy in big-cap technology -- had a very ugly reversal bar and finished down around 2%.
Breadth was still quite good, with around 5,500 gainers to 2,100 decliners, but if you have been focused on buying the best-performing stocks lately, then you probably had a tough time today.
It was quite a messy day, which wasn't nearly as positive as you'd think based on the action in the Dow Jones industrial average and S&P 500. The question now is what comes next?
There is likely to be a continuation of the rotational action as it becomes increasingly clear that the Covid crisis is going to come to end at some point next year. The headlines about the increases in cases look much different in this context.
With many stocks extended, a "sell the news" inclination, and a tendency toward rotation, it is going to be a tricky environment.
I raised some cash today, and will be looking for some new leadership to emerge as this rotation develops. Stocks need a rest, but as the corrective action continues, some new winners should standout.
Have a good evening. I'll see you tomorrow.