Stocks need a new catalyst to spur another upward move.
Since Nov. 6, the last trading day before a series of positive surprises about vaccines for Covid-19, the S&P 500 (.SPX) is up about 2.4%. The rally has been led by value stocks, which benefit more from a strengthening economy than growth stocks. The Vanguard S&P 500 Value exchange-traded fund (VOOV) is up 7.1% in that span.
Pfizer (PFE) and BioNTech (BNTX) said Nov. 9 that their vaccine was 90% effective for patients who had never contacted the virus. And Moderna (MRNA) said Monday that its vaccine had almost 95% efficacy. Both vaccines could be approved in time for distribution to begin this year.
The three companies could distribute as many as 2 billion doses combined by the end of 2021. The probability of that just skyrocketed—Moderna is up 24% since Nov. 6. According to strategists at Goldman Sachs, almost 1.2 billion doses could be released by the first quarter of 2021, considering the progress of other vaccine makers.
This all comes after stocks had already gotten a jolt in late October, when much stronger than-expected economic data and third-quarter earnings hit the wires.
So it was no surprise when stocks reacted more tentatively to Pfizer’s news Wednesday that its vaccine was showing 95% effectiveness. The Vanguard value ETF was up just 0.3% at midday Wednesday.
The most recent economic data have been relatively weak. Retail sales in the U.S. rose 0.3% in October from September, down from a previous gain of 1.6%. Excluding food, gas and other items, retail sales only rose 0.1%. Credit-card spending has been tracking at 7% below pre-pandemic levels in the past few weeks, down from 5% below that level in the summer.
The result? Stocks are now on hold. Since Monday, the Vanguard value fund is down 0.8% and the S&P 500 has lost 0.7%. Coming into Wednesday, 84% of S&P 500 stocks were trading above their 50-day moving averages, which indicates a pause is expected, according to Tony Dwyer, Canaccord Genuity’s chief market strategist.
Still, there are a few factors that could lift stocks in the short term.
“The catalyst the market is looking for is really going to be that stimulus bill,” said Lindsey Bell, chief market strategist at Ally Invest. She said the economic recovery is certainly likely to slow down for the next few months, especially as virus cases tick up and questions around the timing and distribution of vaccines remain.
“Wall Street is preparing for a weaker next couple months on the consumer spending and retail sales,” Bell said.
That brings us to another potential catalyst: the holiday season. Target (TGT) reported strong revenue and better-than-expected earnings on Wednesday. If that is any indication of the consumers’ desire and ability to spend, the holiday season could be a strong one.
Lastly, while stock prices already reflect expectations that a vaccine will be approved and distributed, given the news from Pfizer and Moderna, those aren’t the only drug companies in the game. “You’re also going to get news out of Johnson & Johnson and Gilead and Regeneron,” said Kenny Polcari, managing partner at Kace Capital Advisors.
Investors can take the market’s breather in stride. There are plenty of catalysts to count on.
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