Let’s start with last week’s fund flows data:
The SPY was the net beneficiary of a huge inflow, largely thanks to Pfizer’s (NYSE:PFE) news that its vaccine trials were very successful. The Russell 2000 also had a very nice inflow. Money, however, left the QQQ as investors continue to rotate out of lockdown stocks and into cyclicals. There was also a decent outflow from the treasury market.
Despite the positive medical news, the healthcare ETF had a modest outflow. Consumer-oriented sectors (XLY) and (XLP) also lost investors. The cyclical pair of industrials (XLI) and basic materials (XLB) benefited from sector rotation. However, tech and communication services also benefitted from the inflow.
For the second week in a row, vaccine news is very positive (emphasis added):
The drugmaker Moderna announced on Monday that its coronavirus vaccine was 94.5 percent effective, based on an early look at the results from its large, continuing study.
Researchers said the results were better than they had dared to imagine. But the vaccine will not be widely available for months, probably not until spring.
Pfizer and Moderna each announced the findings in news releases, not in peer-reviewed scientific journals, and the companies have not yet disclosed the detailed data that would allow outside experts to evaluate their claims. Therefore, the results cannot be considered conclusive. The studies are continuing, and the figures on effectiveness may change.
Moderna (NASDAQ:MRNA) wouldn’t have released this data if it weren’t positive that the results would withstand scrutiny.
No, really, stock picking doesn’t work (emphasis added):
Value hasn’t done better than Growth since 2007. This means that for the past 13 years, value-oriented investors and money managers – whose goal is to outperform the markets – have faced daunting odds, while Growth-oriented investors and managers have had the wind at their backs.
That’s why many Value managers are frustrated. And why many of their investors are frustrated, too, and taking their money back.
It also explains why AJO’s assets under management, once $31 billion, were down to about $10 billion when Aronson announced he would close the firm.
“Our secret sauce wasn’t performing,” Aronson said. For the past five years, he had underperformed AJO’s performance benchmark, the Russell 1000 Value Index. “With the handwriting on the wall, we decided to hold our head high, return the capital and shutter the business.”
The main reason I look at broad ETFs and not individual stocks is that you can’t beat the market long term. This is the conclusion from the SPIVA analysts:
The overarching takeaway here remains the same. In good times as well as bad, active management has persisted to produce underwhelming results. Through June, more than 87% (87.2%) of all domestic stock fund managers had underperformed the broad S&P Composite 1500 Index since June 2005.
The data is very clear.
Let’s take a look at today’s performance tables:
The Moderna vaccine news sent the markets higher today. Small caps were the main beneficiary. While larger caps were up, their performance was more modest. Treasuries were more or less unchanged.
The only sector that was down was healthcare, but then only marginally. Energy gapped strongly higher as traders bet the continued positive vaccine news would lead to stronger oil demand. Industrials and financials – two key cyclical stocks – rounded out the top three.
Let’s start by looking at the inter-market charts:
Commodities (left) rebounded from their Spring lows but have been trending sideways since the end of the summer. Bonds (second from left) are trending lower while stocks (second from right) are fully rebounded. The dollar (far right) is near a 6-month low.
Let’s start by looking at the 2-week charts:
The SPY is trending between 350 and 362. Today, it closed near 2-week highs. Notice the very high volume at the close as traders added shares in the last minutes of trading.
Meanwhile, small caps are in the middle of a stronger rally. At the end of November 12, prices started a rally that is continuing higher. Like the SPY, the IWM had a large inflow at the close.
As I noted in my weekly ETF column, the bulls and bears are pretty well-balanced. Today’s vaccine news gave the bulls plenty of ammo to bid shares higher. But the virus news is beginning to be very negative. This could weigh on sentiment as the week progresses.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.