Summary and Price Action Rundown
US equities climbed higher again today as more positive vaccine news kept investors focused on the encouraging medium-term outlook despite grim near-term pandemic developments. The S&P 500 posted a fresh record high today, gaining 1.2% today with growth-sensitive stocks remaining in the lead, to hoist its year-to-date upside to 12.3%. The Euro Stoxx Index and Asian stocks also registered robust gains. A broad dollar index slid back toward recent lows while Treasuries were little changed, with the 10-year yield hovering below multi-month highs of 0.89%. Brent crude slid back below $43 per barrel.
Vaccine Hopes Continue to Drive Markets Despite Dire Coronavirus Developments
Pandemic outperformers lagged traditional economy stocks again today even as daily infections remained grimly elevated and containment measures in various areas were tightened further. US stock indices soared to record heights today after Moderna announced that its experimental coronavirus vaccine is 94.5% effective at preventing infection, according to recent results from its large-scale Phase 3 trial. Moderna is the second company to announce preliminary data on an apparently successful product, following Pfizer and BioNTech’s announcement last Monday that its experimental dose is 90% effective. Moderna’s trial, including more than 30,000 volunteers, appeared to prevent virtually all symptomatic cases of the virus. The vaccine’s effectiveness was tested by inoculating one study group and giving another placebos. Of the 95 participants who contracted coronavirus, only five received the vaccination beforehand. Statistically, the virus showed no difference in effectiveness in key subgroups, though the test results will still undergo independent analysis before the product is considered for release to the general public. Earlier this morning, Dr. Fauci, director of the National Institute of Allergy and Infectious Disease, stated “these are very impressive and very encouraging and exciting results,” though reasserted the need to continue wearing masks, social distancing, and maintaining Covid-cautiousness.
The virus has now affected more than 11 million Americans directly, with the latest million cases occurring in the last six days alone. Moncef Slaoui, chief scientist for Operation Warp Speed, suggested that should any early vaccine candidates receive permission for emergency use, doses could be distributed as early as this December. However, health officials specified that front-line health workers and those most at risk would receive the initial vaccine, while the general public would likely see expanded access by April 2021. After the announcement, “stay-at-home stocks” slipped, with shares of Zoom, Netflix, Logitech, and Teladoc down 1.1%, 0.8%, 0.3%, and 3.4%, respectively, with these price responses considerably milder than after Pfizer’s announcement last Monday. In contrast, those stocks that have struggled during the pandemic rose, with AMC, Norwegian Cruise Lines, and Royal Caribbean climbing 4.7%, 6.3%, and 6.9%, respectively, and all major airline carriers posted robust gains as well. – MPP view: With these exciting developments bolstering investors’ conviction that a vaccine will be effective and widely available at this time next year but near-term pandemic developments suggesting a virulent short-term economic impact, markets will be in transition mode for the coming quarters as investors attempt to navigate these complex public health and economic cross-currents. It had seemed premature to get really excited about cyclicals and the post-Covid growth story, but today’s estimates of widespread availability were earlier than Pfizer’s projections last week. Meanwhile, we continue to expect the ardor to cool for pandemic winner stocks, but for the moment, the positive tide seems to be lifting almost all boats. Re-upped QE by the Fed early next year, which we expect, will lend support to liquidity/momentum-driven upside in the short run.
Wall Street Ponders Candidates for SEC Head
Investors are speculating over future potential regulations under a Biden administration as Securities Exchange Commission (SEC) Chief Jay Clayton announced he will retire from his post before the end of 2020. An appointee of the Trump administration, Clayton pursued changes to regulations considered by some as burdensome and hindering corporate growth, often in the face Democratic opposition. Clayton’s SEC clipped off rules under the Dodd-Frank law meant to tighten control over Wall Street banks and eased rules for small cap companies to raise capital on the market. The SEC cited rules Clayton ushered in to simplify how information is presented to individual investors and his initiatives towards strengthening the agency’s inspection and enforcement programs.
Several names are currently being discussed as to who Biden will appoint as Clayton’s replacement. The two most concerning to banks and investment firms are Gary Gensler, the head of Biden’s transition team examining federal regulators, and former Manhattan federal prosecutor Preet Bharara. Gensler, former head of the Commodity Futures Trading Commission, has a history of clashing with Wall Street over issues including the manipulation of LIBOR, leaving investors concerned over the regulatory environment under his potential leadership. However, his consideration for other prominent cabinet posts keeps his appointment as SEC chairman far from certain. Bharara is also considered by investors as a worrisome option due to his contributions in the shutdown of SAC Capital Advisors in the wake of the 2008 crisis, though he is also being considered for top positions at the Justice Department. Other names progressives have pushed for include former SEC Commissioner Kara Stein, current SEC Commissioner Allison Lee, and Dodd-Frank contributor Michael Barr. Moderates have advocated for Robert Jackson Jr. who opposed many of the Trump-era rule cuts at the SEC and pushed, along with Preet Bharara, for clearer insider-trading rules to better protect investors.
Additional Themes
Regional Bank Mega-Deal – Regional banking giant PNC announced that it is purchasing Spanish financial group BBVA’s US business for $11.6 billion. The US division has $104 billion in assets under management, with banking subsidiary BBVA USA operating 637 branches in Texas, Alabama, Arizona, California, Florida, Colorado, and New Mexico. The combined bank will have a coast-to-coast presence in 29 of the 30 largest markets in the US. PNC’s all-cash deal is the second-largest US banking acquisition since the 2008 financial crisis, behind only the combination of SunTrust and BBT in December of 2019. The purchase price represents almost 50% of BBVA’s current market cap and is expected to close in mid-2021 and will create the fifth-largest US retail bank with more than $550 billion in assets. The deal is attractive to PNC because it accelerates PNC’s presence in the Southeast and West. Shares of PNC gained 2.2% while US-listed shares of BBVA vaulted 11.4% higher.
Empire State Manufacturing Slackens – The New York Fed’s regional factory gauge for November showed a slower-than-anticipated pace, printing 6.3 versus a consensus forecast of 13.5 and the previous month’s reading of 10.5. This is the slowest rate of expansion since August as the Empire State survey continues to lag other Fed regions in the manufacturing recovery. Although official data remains relatively resilient, tomorrow’s retail sales and industrial production data for October will be scrutinized for signs of backsliding. High-frequency indicators such as restaurant and travel bookings are showing incipient signs of rolling over in recent weeks, corresponding with the nationwide surge in coronavirus cases. – MPP view: Vaccine news this good has also inoculated markets against growth concerns, even if tomorrow’s retail sales data undershoots.