Positive Pfizer News Drives Rally in Energy and Reopening Names on Friday, S&P Closes at another All-Time High
Key Takeaways
- S&P closed at 4,697.52, an all-time high, which is up from last week’s close, also an all-time high, of 4,605.38.
- This morning’s job report was very positive. Nonfarm payrolls increased by 531,000 handily beating the 450,000 estimate. Leisure, hospitality and professional and business services led the broad-based gains and unemployment dropped to 4.6%.
- Energy and re-opening names led the gains today as economic growth prospects seem significantly rosier in the wake of Pfizer’s announcement about a highly effective therapeutic.
- Dr. Scott Gottlieb announced this morning that “the end of the pandemic as we know it” is likely upon it.
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We mentioned in this column a few weeks ago that even though a lot of commentary focuses on what could go wrong and what Black Swan risks may be lurking beneath the surface there’s also another side to that coin. Sometimes there are also positive surprises. We mentioned that the largest coordination of efforts and scientific resources since the Manhattan Project was bound to produce some positives and today that view was vindicated.
Pfizer announced that they have developed a pill to treat the coronavirus that reduces the risk of hospitalization or death by 89%. This is a major game-changer and given the breakthrough-rate experienced by the vaccinated is an even more significant stride in the quest to put this awful pandemic in the rear-view mirror.
The jobs report this morning was also very positive. It handily beat estimates and showed gains across the economy, led by hospitality and leisure. Interestingly, despite the broad-based rally likely based on alleviating concerns about weak growth, yields declined today. The US dollar is also showing strength.
Globally negative bond rates are retreating. Swiss, Dutch, Irish and French yields have all turned positive. The amount of negative yielding debt has declined to $11 trillion from a height of $18 trillion in December. Earnings have been very strong, and margins have as well. If you’re a mean-reversion person, you might get the inkling to sell at what you think is a top, but we’d highly advise reading our Head of Research, Tom Lee’s, comments below before doing that.
We’ve been waiting for COVID-19 to clear and one of the leading experts on the issue, Dr. Scott Gottlieb, expressed an unusually strong optimistic sentiment saying, “By January 4th, this pandemic may well be over, or at least as it related to the United States after we get through this delta wave of infection. And we’ll be in a more endemic phase of the virus.” This guy knows his stuff and we’re ecstatic to hear this.
In some ways, the post-vaccine optimism which propelled cyclicals and re-opening higher has been outdone by this development. Of course, we’ll need to learn more about how this new drug is distributed but generally, it is a lot easier to make pills than to make vaccines.
We think there was a lot of people who expected turmoil around the Fed announcement which is certainly natural. The beginning of the end of the most accommodative policy in history does bring a litany of new risks for markets, but generally, we don’t see a lot stopping the ‘everything rally’ before really positive seasonals start kicking in. There’s also evidence that we may be at the peak of supply chain issues.
Consumer spending continues to be incredibly strong. People are spending about 5% more on durable and non-durable goods through September compared to before the pandemic. Earnings have been strong, but we believe they will continue to be strong because of a combination of companies recently surviving a great shock often by innovating more efficient processes and integrating technology to save. The NABE business survey showed 58% of businesses are paying higher wages which is an all-time high for the survey.
Energy was the leading sector, and we’d point out that despite the spat between US and Saudi officials on oil prices, we are likely entering an enduring trade for the sector. We know the beta can cut both ways, so if you can’t handle red screens occasionally, then the Energy trade might not be for you. However, we see management that is extremely shareholder-friendly and a sector that is incredibly cheap compared to the market.
While we are reaching all-time highs and it seems like markets keep going up, we still think that equities are fairly cheap especially on a relative basis to bonds. Our Head of Research will discuss below why those who think the party is over as we move toward the end of 2022 might be incorrect.
We see the earnings backdrop as very positive and obviously, if the primary headwind for markets, this damned virus, is removed then we could be seeing unprecedented levels of pent-up demand meeting with the leanest and meanest companies that we’ve seen in decades.
