Let’s take a look at last week’s fund flows data from ETF.com:
Flows were remarkably light last week. The SPY lost money while the QQQ had a modest inflow. The flows into and out of the other indexes were negligible.Two cyclicals — basic materials and industrials — continue to receive large inflows as traders bet on a post-vaccine economic revival. Two defensive sectors — utilities and health care — had an outflow. Tech and communication services — two key sectors for the QQQ and SPY — saw an outflow as well.
There is now a third vaccine (emphasis added):
The drugmaker AstraZeneca announced on Monday that an early analysis of some of its late-stage clinical trials, conducted in the United Kingdom and Brazil, showed that its coronavirus vaccine was 70.4 percent effective in preventing Covid-19, suggesting that the world could eventually have at least three working vaccines – and more supply – to help curb the pandemic.
The company said its early analysis was based on 131 coronavirus cases. The trials used two different dosing regimens, one of which was 90 percent effective in preventing Covid-19 and the other of which was 62 percent effective.
The regimen that was 90 percent effective involved using a halved first dose and a standard second dose. Oxford and AstraZeneca also said that there were no hospitalized or severe cases of the coronavirus in anyone who received the vaccine, and that they had seen a reduction in asymptomatic infections, suggesting that the vaccine could reduce transmission.
The key question is how the market will trade on this information. Pfizer’s (NYSE:PFE) announcement caused a large spike which took two weeks to digest. There were several other key vaccine announcements during the consolidation period that had far less trading impact.
The incoming administration believes a double-dip recession is possible (emphasis added):
Advisers to President-elect Joseph R. Biden Jr. are planning for the increasing likelihood that the United States economy is headed for a “double-dip” recession early next year. They are pushing for Democratic leaders in Congress to reach a quick stimulus deal with Senate Republicans, even if it falls short of the larger package Democrats have been seeking, according to people familiar with the discussions.
Many of the president-elect’s advisers have become convinced that deteriorating economic conditions from the renewed surge in Covid-19 infections and the looming threat of millions of Americans losing jobless benefits in December amid a wave of evictions and foreclosures require more urgent action before year’s end. That could mean moving at least part of the way toward Mr. McConnell’s offer of a $500 billion package.
Politics aside, this is a very legitimate concern. The latest PMI releases from Markit Economics show a deteriorating European service sector. In the US, continued unemployment claims are still at sky-high levels …
… indicating that the labor market has a long way to go before healing. But the biggest short-term threat is the continual rise in virus cases that might force additional shut-downs in December and January.
Let’s take a look at today’s performance tables:There was a huge difference in performance between small and large-caps. Small-caps posted solid gains. Micro-caps rallied a little more than 2%; small-caps advanced 1.88% while mid-caps were 1.51% higher. Larger were up less than 1%.
Energy continued to rally, this time moving 7% higher. Other cyclical sectors (financials, industrials, consumer discretionary) also advanced. Defensive sectors either near unchanged or down modestly.
Small-caps gapped higher at the open, consolidated some gains and then continued to trend higher for the rest of the session.
The QQQ gapped higher and then trended lower until mid-morning. They then reversed course and continued rallying, eventually gaining for the day.
The SPY’s 2-day chart shows a more or less sideways move.
Let’s place the above charts into a 1-year perspective:
The SPY is consolidating right at key long-term levels.
The IWM continues to rally
A few weeks ago, I asked if the large-caps underperformance would prevent small-caps from rallying or if the small-cap rally would help to bolster large-caps. So far, it’s the latter.
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.