US investors & traders are continuing their rotation out of 2020's growth-oriented winners and into cyclical underperformers. Recovery sectors like travel & leisure, energy, and financials are booming today in the face of a pandemic resurgence that has pushed hospitalization rates to new highs around the US.
Investors are looking past the remainder of 2020 and towards the spring, where two high potential vaccines aim to rid our world of this microscopic terror.
Vaccine Hopes May Be Over Played
MRNA Quick Quote MRNA - Free Report) just announced its vaccine was 94.5% effective in preventing COVID-19 in early trials, making it the second vaccine to reach this type of breakthrough in November. Pfizer ( PFE Quick Quote PFE - Free Report) was the first to announce a 'successful' clinical trial earlier this month, which has turned the market's tides with investors & traders now able to see the light at the end of the tunnel.
AZN Quick Quote AZN - Free Report) , Johnson & Johnson ( JNJ Quick Quote JNJ - Free Report) , and Novavax ( NVAX Quick Quote NVAX - Free Report) are each still working on vaccines of their own. Market optimism is high, but the tunnel is getting darker as we come closer to the end of the COVID-crisis.
The US has had more than 1 million new cases in the past week, with total COVID cases surpassing 11 million (over 3% of the US population). States are going back into lockdown mode, and without more fiscal stimulus, we could be in for a long winter where bankruptcies hit the fan (again).
I would tread cautiously in these markets. Do not blindly chase this cyclical rally. We are trading up to overbought territory.
2020's cyclical underperformers are finally participating in the market's rally as bullish investors & traders drive the S&P 500 past 3,600, which was Goldman Sach's old year-end price target before increasing it to 3,700 earlier this month. The markets are now sitting at frothy levels with my 'overbought/oversold' oscillators teetering on overbought (which you can see circled in red).
It may be time to start buying some put option protection as the S&P 500 ticks closer to Goldman's year-end target. Options are getting cheap as volatility gets priced out of the markets. The VIX, aka the fear index, has fallen from 41 to 23 in just two weeks (44% drop).
I am looking at SPDR S&P 500 ETF (
SPY Quick Quote SPY - Free Report) put options expiring on December 18th with a strike price of $355. Stocks To Watch This Week
I love Alibaba (
BABA Quick Quote BABA - Free Report) shares below $300, and with regulatory concerns looming, the stock has tumbled way below its intrinsic value in a whiplash reaction by the markets. The Chinese government reacted to a critique by Alibaba & Ant Group founder, Jack Ma, with anti-trust 'draft rules.' I believe this is Xi's regime demonstrating that they have the control, not billionaires like Jack Ma. China doesn't want to inhibit growth from its biggest tech giant.
Alibaba is trading at less than half the market value of its western competitor Amazon (
AMZN Quick Quote AMZN - Free Report) , despite having stronger profitability, wider margins, and a superior long-term outlook as China's economy rapidly digitalizes. The stock is trading at $260 today, and with record sales during 'Singles Day' (11.11) and a new Asian-Pacific trade deal, the future for this Chinese tech powerhouse looks bright.
Keep an eye on well-positioned COVID winners as they shed some of their rich valuations and head towards a reasonable price. Stocks on my Wishlist include Splunk (
SPLK Quick Quote SPLK - Free Report) , Salesforce ( CRM Quick Quote CRM - Free Report) , DocuSign ( DOCU Quick Quote DOCU - Free Report) , and Etsy ( ETSY Quick Quote ETSY - Free Report) . These equities were all provided with a massive pandemic tailwind and will continue to thrive in the precipitously digitizing Roaring 20s. The recent pullback in these stay-at-home name presents an opportunity to jump in at a relative discount. Final Thoughts
Optimism is ramped in the markets today as a second 'successful' vaccine trial is announced. There is now a more defined light at the end of this pandemic tunnel. Still, we are not out of the woods yet. I don't expect a vaccine to be universally available until the spring, and we could be in for a very cold economy this winter.
The rotation into 2020's hardest-hit sectors continues, but with states starting to lockdown again, the pain for the cyclical underperformers is not over. My eye remains on tech and the enterprises that will continue to drive growth in the post-pandemic world. Watch out for more fiscal stimulus as this unprecedented year comes to an end.
The Hottest Tech Mega-Trend of All Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early. See Zacks' 3 Best Stocks to Play This Trend >>