Woah, woah, woah, slow down!
What you need to know this week in 5:15 minutes - Nov 16, 2020
Mr. Market went on a bender this week! The news of Pfizer and BioNTech’s promising vaccine results sent him into a state of euphoria. The road to “normal” is still long as the country faces down a second COVID wave and lockdowns go into effect. Luckily, there is a slew of economic data being released this week that will help Mr. Market sober up and ground himself back in reality.
The market rallies on COVID Vaccine news
A second wave tests America’s resiliency
America’s GDP driver, retail sales, takes to the red carpet
What’s that? What the Market? Is evolving!?
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Introducing, Mr. Market
Mr. Market is an imaginary investor originally created by renowned investor and teacher, Benjamin Graham. If everyone happened to be a 100% rational and logical investing machine there would be no way for anyone to make any profits in the market. We’re human though, we make emotional decisions and our analysis isn’t always right. Mr. Market represents the actions of the masses and embodies the groupthink elements of the market.
Mr. Market is quite the emotional fellow, one day he’s more excited than a Labrador in a ball pit and the next he’s dying his hair black and walking down the boulevard of broken dreams. He doesn’t make rational decisions, he’s driven by extreme emotions that cause him to ring the alarm, party like its 1999, and some days, he’s simply apathetic. One could say, Mr. Market is a manic-depressive with randomly swinging moods.
When trying to understand the market we aim to distinguish between the fundamental analysis of the economy (DATA! DATA! DATA!) and what is the result of a Mr. Market mood swing. Mr. Market’s mood swings create buying and selling opportunities for investors, so we’ll be checking in on him regularly to get an idea of what may be happening in the market on a given week.
What's going on?
Good News Everyone! There may be a vaccine after all!
Professor Farnsworth has done it again! Well, actually it was Pfizer and BioNTech but we imagine they’ve got a few Farnsworth’s working there. The pharmaceutical companies both announced that their Coronavirus vaccine appears to be 90% successful in early testing.
It’s no surprise that the promising results of a COVID drug got the markets’ high. The world has anxiously awaited news of an effective pharmaceutical response to adequately address the current pandemic.
This week Pfizer and BioNTech are expected to release safety data, and assuming the vaccine hits the right note, the FDA may announce an emergency use application. Analysts will also look to Moderna and Johnson & Johnson for news on their own vaccines.
Much Ado About Nothing...
Despite President-Elect Joe Biden sealing victories in Georgia and Arizona last week, President Trump has yet to concede. In the meantime, the Trump campaign has launched a slew of lawsuits in multiple swing states. The lawsuits have yet to provide substantial evidence backing fraud allegations translating to unsuccessful legal proceedings. With little systemic action being taken by the Federal Government, coronavirus cases in the U.S. continue to rise to all-time highs accumulating over 10MM infections, 241,000 deaths, and various states applying lockdowns and curfews. Speaking of the Federal Government, where is the darn stimulus package? Interesting take on partisan priorities...
Talk about old news that doesn’t seem to end, Brexit negotiations are to wrap up this week in Brussels. Remember back in the day when the UK announced it’s not-so-Irish exit from the European Union (EU) back in 2016? Well, ever since, the UK and EU have been negotiating the terms of the withdrawal. The UK has to transition out by December 31st 2020 and the two hard-ballers have yet to come to deal. Officials on both sides have agreed that they disagree on key issues (e.g., fisheries, state aid) and a deal is not very likely to happen this week. At least they’re agreeing on something for a change?
Show me the data!
Analysts are about to have a field-week as they try to make sense out of a complex global environment in the midst of a second COVID wave striking North America and Europe. This week’s red-carpet celebrity is retail sales, however multiple other figures will be influencing market sentiment as well.
Monday morning we’ll get Chinese Industrial Production and Retail sales figures
Tuesday it’s America’s turn to release monthly retail sales and industrial production numbers
Wednesday both the EU and UK will release CPI figures, while the US will release building permits and housing starts
Thursday expect Brexit announcements, American jobless claims, existing home sales figures and the Philly Fed’s manufacturing survey
Friday will focus on global news starting with Chinese interest rates, British and European consumer confidence levels, British retail sales and German PPI
Analysts expect a continued recovery across all metrics and a slowdown in retail consumption as the impact of this summer’s stimulus package begins to fade.
But what does it all mean?
Mr. Market got high...on the COVID vaccine news. It put him in a state of euphoria as hopes for a faster-than-expected return to “normality” rose. Shortly after the vaccine news broke, stocks skyrocketed on hopes that the economic recovery might go smoother going forward. The highly impacted energy, banking, retail and travel sectors rebounded significantly, while tech stocks and the “pandemic winners”, like Zoom and Peloton, were noticeably absent from the market rally.
The vaccine trials are indeed good news, but we are still a long way away from beating COVID. The vaccine will need to undergo further testing by hospitals and may not be distributed to the public for several months.
After four years of ongoing negotiations, the Brexit deadline is right around the corner. Without a plan in place, a “hard” Brexit is expected, and it is still unclear how this will play out for the neighboring economies and its trading partners. Expect volatility in Europe.
Retail sales represent the largest driver of American GDP and will provide a deeper understanding of how the economy is faring after an unexpectedly strong September. A second COVID wave is making its way through the country and causing lockdowns in its path. America’s economic resiliency will be tested as businesses demonstrate if they can adapt to the circumstances or shutter jobs again. So far, the jobless claims have been rather inelastic compared to the spike in claims during the first wave.
What’s an investor to do?
Mr. Market had quite a week last week. After a big party on Monday with some pharmaceuticals, he is still trying to find his bearings. This week he will be recollecting data from around the world to get his thoughts straight. With markets largely ignoring the rising COVID figures globally, economic data will shed light on the direction of the economic recovery of many nations. Particular attention should be put towards industrial production and retail sales coming from China and the US, as well as the EU’s and UK’s CPIs and Chinese interest rates decisions.
For the Curious Investor:
In lieu of a stimulus plan, look to big box retailers and department stores (e.g., Target, Walmart, Ross) earnings reports for any comments about their preparation for the holiday season, impact of a new COVID wave, and online sales response to their adapting business models.
For those looking to diversify, value stocks may present significant upside with an economic re-opening on the horizon. Look to industries that have been underperforming due to the pandemic, particularly in the “re-opening” sectors (e.g., industrials, transportation & logistics and financials).
If you didn’t know, now you know
Hurricane Iota nears Central America in the aftermath of Hurricane Eta. Eta made landfall in Nicaragua earlier this month, killing at least 120 people and destroying critical infrastructure. The hurricane has endangered the livelihoods of those along its path in Nicaragua, El Salvador, Belize, Guatemala and Honduras. These hurricanes compound the food insecurity crisis in the Dry Corridor. Estimates indicate that close to 3 million people in this area will suffer severe food insecurity in 2020 due to the additional fallout from COVID.
The video below was shared by one of our readers in Honduras, in which survivors are requesting aid and boats.
Our readers pointed us to a couple of efforts raising funds to support those affected. Please donate to the causes below:
Venmo Project Nicaragua @proyecto-505
What we’re reading
10 Ways to have better conversations - TED Talk by Celeste Headlee
Accidentally Wes Anderson by Wally Koval
Some good news everyone!
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This writing is for informational purposes only and the author/s undertake/s no obligation to update this article even if the opinions expressed change. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. It also does not offer to provide advisory or other services in any jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. The author/s expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.