Stock ETFs Close Just Short Of Record

November 09, 2020

Stocks surged to intraday record highs on Monday after U.S. pharma giant Pfizer and German biotech BioNTech announced that their coronavirus vaccine was surprisingly effective, based on preliminary data. The S&P 500 jumped as much as 3.9% to 3,646, briefly surpassing its previous high of 3,581 set in September 2020.

However, steep selling in certain technology stocks, which have benefited from the work-from-home environment, weighed on the broad market by the end of the day. The S&P 500 finished the session at 3,550, stopping just short of a record closing high.

The tech-heavy Nasdaq Composite finished the day down 1.5%, while the Invesco QQQ Trust (QQQ), which tracks the narrower Nasdaq-100, dropped 2%.

The SPDR S&P 500 ETF Trust (SPY) ended the day up 1.2% and is now higher by 11.6% on a year-to-date basis.

S&P 500


 

Pfizer and BioNTech said that their vaccine was 90% effective based on their first interim analysis. The two firms cautioned that “the final vaccine efficacy percentage may vary” as the clinical trial continues, but such a high efficacy rate comes as a pleasant surprise to many.

The Food and Drug Administration had suggested that it would only approve a vaccine that “would prevent disease or decrease its severity in at least 50% of people who are vaccinated.” This vaccine seems to easily surpass that threshold.

Pfizer and BioNTech said that they would submit their vaccine for Emergency Use Authorization to the FDA “soon after the required safety milestone is achieved, which is currently expected to occur in the third week of November.”

The Reopening Trade Is On

The S&P 500 isn’t the only broad market index that surged today. The iShares Russell 2000 ETF (IWM), which holds small caps, climbed as much as 8.9% to reach an all-time high for the first time since August 2018. The index finished the day with a gain of 3.6%, good enough for a record close. 

Many investors had assumed that when a big, successful vaccine announcement was made, small caps would outperform due to their greater exposure to the domestic economy than large caps. Small caps also tend to have weaker balance sheets than their large cap counterparts, and more exposure to cyclicals, both of which work in their favor as economic anxieties ease.

Indeed, it’s these beaten-down, procyclical stocks and ETFs that spiked the most today. The energy sector, as measured by the Energy Select Sector SPDR Fund (XLE), was the top-performing sector of the day, up a whopping 14.3%.

The Financial Select Sector SPDR Fund (XLF), was No. 2, with a 8.2% gain, while the Real Estate Select Sector SPDR Fund (XLRE) gained 2.6%.

Financials got a boost from today’s rise in interest rates, while real estate rallied on the improved prospects for commercial real estate segments, like office buildings and brick-and-mortar retail.

The US Global Jets ETF (JETS), which holds stocks in the airline industry, also saw relief, with a 16.1% gain for the session. The Invesco Dynamic Leisure & Entertainment ETF (PEJ), which holds a lot of restaurant, hotel and casino stocks, was up 7%.

Work-From-Home Stocks Swoon

Many of the stocks that had suffered the most due to the pandemic will benefit the most from a broad economic reopening, and that was reflected in today’s movements. The opposite was true as well; the work-from-home stocks that rallied so powerfully in the wake of the pandemic got hit hard today.

Those included cloud software stocks, e-commerce stocks, video game stocks and the like.

The Global X Cloud Computing ETF (CLOU) was down 4.9% today. The ETFs’ largest holding, Zoom Video Communications, tumbled 17.4% on the session.

(Use our stock finder tool to find an ETF’s allocation to a certain stock.)

Meanwhile, the Amplify Online Retail ETF (IBUY) was down 4% today as investors reasoned that following the release of an effective vaccine, consumers will pull back on some of their online shopping activity and shift back into shopping at brick-and-mortar retailers.

Likewise, the Global X Video Games & Esports ETF (HERO) was down 4.6% today on a similar expectation that by spending less time at home, people will play video games less in the aftermath of a widely available vaccine.

Safe Havens Take A Dive

In addition to impacting stock ETFs, today’s vaccine announcement had a notable impact on bond ETFs. The iShares 20+ Year Treasury Bond ETF (TLT) and the iShares 7-10 Year Treasury Bond ETF (IEF) were down 2.1% and 0.7%, respectively.

The 10-year Treasury bond yield reached as high as 0.97% today, the loftiest level since March 2020, while the 30-year hit 1.77%, also the highest since March 2020 (bond prices and yields move inversely).

Investors believe that a vaccine will help accelerate economic growth and inflation, pushing the Fed to reduce some of its monetary support and potentially even hike its benchmark federal funds rate sooner than expected.

That sentiment weighed on gold today as well. The SPDR Gold Trust (GLD) was lower by 4.4% as gold prices neared $1,850/oz.

Finally, the Cboe Volatility Index (VIX), which measures fear levels on Wall Street, actually ticked higher to 25.8 at the close, after falling to a three-month low of 22.86 earlier in the session.

Email Sumit Roy at [email protected] or follow him on Twitter @sumitroy2

 

 

 

 

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