1. Moving the markets

The tug-of-war between vaccine giants Pfizer and Moderna shifted into overdrive with the former now besting the latter by pointing to its final analysis, which verified a 95% effective rate vs. Moderna’s previous 92%. I am sure that we have not heard the last of it.

The news of that advancement was offset by rising Covid-19 cases and coast-to-coast lockdowns and restrictions, some of which are worrisome due to their open-ended nature.

For sure, the markets had gotten ahead of themselves after the initial vaccine news with the question now being “when” regarding availability. Still, some of the long-term uncertainty has been removed.  

An early rally bit the dust, and the bears took the opportunity to drive the indexes into the red, in the process losing all their week’s gains, and closing at the day’s lows.

Chimed in BofAs CIO Michael Hartnett:

“It’s time to turn bearish for the near-term and “sell the vaccine” because Wall Street has gone “full bull.”

With the election outcome still undecided, ZeroHedge dug in a little deeper into Wall Street’s admission that “Civil Unrest” could crash markets:

… what we found remarkable is that after “tech bubble” in 2nd place in the list of biggest tail risks, “Civil Unrest” suddenly popped into 3rd place, after not being cited as a notable risk in any of the previous BofA surveys.

What that means is that despite reckless money printing and creation of liquidity coupled with the lowest interest rates ever, a Black Swan event could appear out of nowhere and take the markets down—big time.

Hence my continuous and unending insistence that you never expose yourself to equities without an adequate exit strategy that addresses your risk tolerance. Complacency and hope are not viable investment approaches.

1. Moving the markets

The constant vaccine hype ran out of steam today, with concerns turning to rapidly accelerating economic shutdowns coast-to-coast, which for sure will hammer the US economy and others as well.

As a result, the markets fizzled, but the pullback, while broad, was modest in scope.  After all, a pause after the recent ramp into record territory is a normal occurrence.

Contributing to the weakness were poor econ data, as October retail sales disappointed—most likely because of the fading stimulus. However, while the goods and services sales growth slowed YoY, they remain relatively high.   

Yesterday’s spike in 10-year bond yields reversed with traders interpreting this as anxieties increasing more about the near-term pandemic challenges than any potential boost from newly developed vaccines.

The US Dollar index slipped a tad, but it was not enough to lend support to gold, which skidded -0.37%.

Fed head Powell took part in a moderated discussion in California and commented as follows:

“The fact that the retail sales were a little weaker in October reinforces the idea that if the pandemic gets worse and there’s more shutdowns and restrictions, that the November data, which we haven’t gotten yet, will be even softer.”

“The near-term risk that we’re most focused on is the spread of COVID these days.”

“We’re not going back to the same economy. We’re going back to a different economy, the time for fiscal discipline is not now.“

Especially his last sentence should be a wake-up call for investors because it is the main reason, I believe gold should be a part of anyone’s portfolio.

1. Moving the markets

The futures were again directing the way via an ecstatic “hope” move in the markets with ZH narrating it this way:

Last night, when discussing the euphoric surge in Sunday markets, we said that the move is on expectations that the “Moderna covid vaccine may hit as early as tomorrow, and a favorable outcome would have a similar result to last Monday’s Pfizer surprise which sent the S&P as high as 3,668 before fading much of the losses.”

This observation was spot on, and today we saw Moderna pick up the baton handed to them by Pfizer, which pushed futures higher. The theme continued in the regular session with the major indexes heading north without looking back.

The Dow lead the way but fell short of claiming the $30k level, the S&P 500 placed 2^nd and the Nasdaq lagged a little. Both, the Dow and S&P closed in record territory.

Shattering Pfizer’s effectiveness claim of 92%, Moderna upped the ante via an effective rate of 94%, so the tug-of-war will continue. However, the ever-optimistic traders see the Covid crises now as something that might be more manageable, thereby assisting future earnings and justifying elevated stock prices.  

The 10-year bond yield inched higher, while the US dollar index also climbed, both of which took the steam out of an early bounce in gold.

With all that enthusiasm, one group of investors, surely and quietly continue to exit the markets, namely the “Smart Money:”

It makes me wonder what these people know that traders don’t.