A November and December to Remember

December 17, 2020

November was a month dominated by news headlines surrounding the U.S. presidential and congressional election campaigns. In the weeks and days leading to November 3rd, share prices fell due to anticipation that Joe Biden would defeat President Trump. While the news media attributed these declines to a possible contested election in the courts, leading to extended uncertainty, the markets knew better.

President elect Joe Biden has now received enough electoral votes to officially clinch the presidency, however, the expected “blue wave” is still being called into question. In response, share prices staged a commanding rally, most visible in healthcare and technology sectors. These sectors had been weighed down by profit-taking in the downturn, due to the reasonable fear that Biden would introduce tax reform that included higher capital gains and corporation taxes, healthcare reform and antitrust policies against monopoly-like technology behemoths.

All eyes are now on two run offs in Georgia that will keep everyone on their toes until early January 2021. A republican win could ensure that most measures proposed by the new White House occupant will be dead upon arrival. These measures include raising tax rates, environmental friendly policies, larger fiscal stimulus, healthcare reform, and antitrust measures.

In our last blog post, we took a look at what presidential elections have meant for markets historically. With much at stake, it seemed obvious that the outcome could impact the stock market; however, our findings suggested that exogenous events and policy measures from Congress that take place during a president’s term have a larger impact on the direction and ultimate outcome of the markets.

So far, this time has proved to be no different.

On November 9th, Pfizer and BioNTech announced that their messenger RNA COVID-19 vaccine in Phase 3 clinical trials has shown to be 90% effective in preventing the virus at seven days after the second dose. This means that protection is achieved 28 days after the initiation of the vaccine, which consists of a two-dose schedule.

The good news was followed up by the announcement on November 16th by Moderna that its messenger RNA COVID-19 vaccine has been shown to be 94.5% effective in preventing the virus. Despite this positive news, distributing the vaccines presents a daunting challenge. Moderna’s vaccine needs to be kept at a temperature of minus 20 degrees Celsius (minus 4 degrees Fahrenheit), while Pfizer and BioNTech’s vaccine needs to be kept a chilling minus 70 degrees Celsius (minus 94 degrees Fahrenheit).

With the approval of Pfizer and BioNTech’s vaccine on December 11, the biggest vaccination effort in history is underway. According to Bloomberg, the U.S. plans to distribute 2.9 million doses in the first round of shipments, and by the end of 2020, millions could be inoculated.

Below is an update pertaining to the progress of the additional potential vaccines:

Source: Bloomberg: Tracking the Coronavirus That Will End the Pandemic

Year-to-date, the S&P 500 has a total return of 16.39%, and since the election has gained 9.66%. Small cap stocks, as represented by the Russell 2000, have a total return year-to-date of 18.94%, and since the election have gained 21.40%. For a little perspective, on March 23rd (the market bottom in 2020), the S&P 500 was down almost 34% from its peak and the Russell 2000 was down roughly 41% from its peak. Gains from the market lows of 67.3% and 97.4% for the S&P 500 and Russell 2000 in this short of time frame are almost unimaginable.

Source: Bloomberg; December 31, 2019 – December 15, 2020

Strengthening market sentiment has run in stark contrast to a worsening global health crisis. The ignition in large cap and small cap stocks to make it back to record highs and then some seems like something out of a fiction novel. Governments have continued to struggle with balancing the needs of their economies and the health of their citizens, and time is of the essence for millions of people as businesses are teetering on the brink of insolvency.

Until the health crisis can be remedied, Congress has to act as a bridge to the other side by coming together to pass more fiscal stimulus. House Speaker Nancy Pelosi and Senate Majority Leader Mitch McConnell have been in talks and may come to an agreement to the tune of almost $900 billion. There are disagreements concerning state and local aid as well as liability shields for businesses. We believe market participants have started to price this news in and will continue to focus on fiscal and monetary support in the near term until the economy is back on its feet.


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