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Bulls Get Ready to Feast

11/25/2020 10:00 am EST

Focus: STOCKS

Jon Markman

Editor, Tech Trend Trader, The Power Elite, & Strategic Advantage

Stocks ripped higher at the start of the week, starting the third straight week with positive news about a possible COVID-19 vaccine and data showing a monthly gauge of US business activity hit a five-year high, notes Jon Markman, editor of Strategic Advantage.

The Dow ended 1.1% higher, finishing just below a 330 point gain. The S&P 500 rose about 0.6%, while the Nasdaq also ticked up 0.2% amid new coronavirus vaccine news.

Breadth favored advancers 5-2, with an impressive 624 new highs and just 37 new lows. Topping the new highs list were Tesla (TSLA), Square (SQ), Target (TGT), Nio (NIO), Applied Materials (AMAT), and Lam Research (LRCX). Finally, a day driven by the tech sector.

AstraZeneca (AZN) said ahead of the opening bell that interim data analysis showed the COVID-19 vaccine candidate it is developing with the University of Oxford is, on average, 70% effective.

AstraZeneca shares slipped 1.1%, likely because the candidates announced the previous two Mondays from Moderna (MRNA) and Pfizer (PFE), along with partner BioNTech (BNTX), had efficacy rates of at least 90%. Moderna rose 3.5%, Pfizer slipped 0.5%, and BioNTech added 2.3%.

Meanwhile, IHS Markit said Monday that its flash November reading of business activity in the world's largest economy hit its fastest pace since March 2015.

"Expectations about the year ahead have surged to the most optimistic for over six years, reflecting the combination of a post-election lift to confidence and encouraging news that vaccines may allow a return to more normal business conditions in the not-too-distant future," said Chris Williamson, chief business economist at IHS Markit.

Energy led the market higher, surging almost 7.1% as crude futures popped. Chevron (CVX) rose 6.1% and Occidental Petroleum (OXY) soared 17%. Financials rose 1.9% as a group, led by American Express's (AXP) 3.1% rise and JPMorgan Chase's (JPM) +2.9% gain. Industrials rose 1.6%, lifted by Boeing's (BA) 6% advance. Caterpillar (CAT) gained 1.5%. Healthcare fell 0.3% as Johnson & Johnson (JNJ) retreated 1%.

On the political front, we learned that President-Elect Biden intends to nominate former Federal Reserve chair Janet Yellen as the next Secretary of the Treasury. At the very least, her stock track record is very good: the S&P 500 compounded at 13%/year during her tenure, even as she raised rates, according to DataTrek Research.

Analysts at DTR go on to note that the only concern is that as a trained economist and former central banker, Yellen is not the sort of individual who will champion novel disruptive technologies like a US central bank digital currency. China’s lead on this count will therefore continue to grow, with unforeseeable consequences for the greenback.

First among the pluses are that investors know former Fed Chair Yellen as a predictable, measured, pragmatic, and ultimately market-friendly policymaker. She is competent, curious, and a pro’s pro. Running the massive Treasury bureaucracy will be unlike anything she’s ever done, but she’s up to the task.

The market has had years to learn how Yellen communicates, DTR observes, so there should be no surprises when she takes the reins next yearIn her time as Fed Chair, she gave eight Humphrey-Hawkins testimonies, 16 post-FOMC press conferences, and many, many policy speeches. At her 2013 Senate confirmation hearing, she underscored that she understood clear and open communication was an important piece of economic policy. That’s a great start. We wish her luck.

In news that crossed the wire after the close, we learned that the GSA bureaucrat responsible for initiating the presidential transition process finally decided to get the ball rolling with approval of the White House. This will help avoid the constitutional crisis we have feared could ensue if the current administration doesn’t order some U-Hauls and start taking their stuff home. Not out of the woods yet, but getting closer. Futures shot higher on the news and are still lofted overnight, which is what we have expected from a Thanksgiving-week market.

Bottom Line: It feels like the clouds are lifting and spirits are improving as the vaccine and political developments are combining to create a positive investing environment. The fact that this comes against the backdrop of a horrible pandemic that is claiming more victims every day is par for the course as there is always something demonstrably wrong with the world in every singular stretch of rising equities, like 2003 and 2009. That’s the famous wall of worry that works in sync with swelling prices to keep the advance orderly. Acknowledge it but don’t let it paralyze you.

Learn more about Jon Markman here.

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