【November 17, 2020】"Vaccine Monday" the Dow Jones Industrial Average reached an all-time high【Tetsu Emori's Real Trading Strategy】

U.S. stocks continued to rise, with the Dow Jones Industrial Average at its first closing high in about nine months since mid-February this year. The S&P 500 also rose to a new closing high. U.S. biopharmaceutical company Moderna announced that its COVID-19 vaccine has shown efficacy, lifting expectations for economic normalization through vaccine deployment. Moderna disclosed that in its late-stage clinical trial, efficacy of 94.5% was observed. As a result, hopes for economic recovery spread, and energy and airline stocks, which had been sold off amid the coronavirus spread, were bought. Among Dow components, gains were notable in the aircraft maker Boeing and the oil giant Chevron.

Regarding the coronavirus vaccines, U.S. pharmaceutical giant Pfizer announced on the 9th that high efficacy had been confirmed for the vaccine developed in collaboration with German biotechnology company BioNTech, and intraday the Dow’s gains exceeded $1,600. That day, value stocks, cyclicals, and small-cap stocks outperformed the market, and the Russell 2000 closed at a new high. Boeing rose 8.2%. Chevron rose 7.2% sharply. Walt Disney rose 4.6%, and the Dow rose 3.8% as well. Financial stocks Goldman Sachs rose 1.5% and JPMorgan Chase rose 2.8%. Moderna rose 9.6%. Pfizer fell 3.3%.

Travel-related stocks were bought, with United Airlines, American Airlines, Carnival, and Norwegian Cruise Line Holdings jumping 4.5–9.7%. However, domestic COVID-19 infections continued to rise, with total cases surpassing 11 million. Restrictions were tightened in various places, including New Jersey and Philadelphia in Pennsylvania. The 11 major sectors of the S&P 500 ended higher excluding Healthcare, with notable gains in Energy.

This week, results from major retailers are in focus. Walmart and Home Depot will report on the 17th, Lowe’s and Target on the 18th. The release of October U.S. retail sales is also expected on the 17th, which should provide clues about consumer spending trends.

Moderna, a U.S. biopharmaceutical company, announced on the 16th that in its late-stage clinical trial for a COVID-19 vaccine under development, efficacy of 94.5% was observed. It plans to apply for emergency use authorization with U.S. authorities within a few weeks, aiming to begin shipments within the year. This marked progress toward vaccine deployment. According to the announcement, in the final-stage trial, 95 individuals infected with COVID-19 were studied. Of these, 90 had received a placebo, and only 5 had received the company’s vaccine candidate, yielding an interim efficacy of 94.5%. No major safety concerns have been reported. About 30,000 people participated in the trial.

The company plans to apply for emergency use authorization to U.S. authorities as soon as efficacy and safety data are ready. According to U.S. media, the filing is expected in early December. By the end of the year, preparations to ship 20 million doses in the United States are expected. The goal is to manufacture 50 million to 100 million doses in 2021. In Europe and the Americas, AstraZeneca of the U.K. and Johnson & Johnson of the U.S. are also advancing their trials.

November’s New York State Manufacturing Index fell to 6.3 from 10.5 in the prior month, remaining in positive territory for five consecutive months. Against the backdrop of a renewed spread of COVID-19 infections, the pace of economic recovery has become more clearly sluggish. The six-month outlook rose to 33.9 from 32.8. In November, the share reporting “improved” dropped sharply to 30.8%. “Worsened” fell slightly to 24.4. New orders were 3.7 (12.3 prior), shipments 6.3 (17.8), and the backlog of orders was −11.9 (−6.6 prior), all worsening. Inventories were −8.6 (−14.6 prior), narrowing the negative gap.

In the employment area, the current employment index was 9.4 (7.2 prior), and the prices paid index was 29.1 (27.8), both improving, while the weekly hours worked fell to 4.8 (16.1). The six-month ahead outlooks were: new orders 32.9 (37.7), shipments 28.2 (29.8), both below the previous month. The backlog of orders was 4.6 (−2.0), inventories 11.3 (2.6), and employment 22.2 (23.2), all showing slight deterioration.

White House National Security Adviser Robert O’Brien on the 16th said that it appears highly likely that the Democratic candidate Biden will win the presidential election, and pledged a smooth transition of power to Biden. He also said that while he had hoped Trump would prevail, he would work with the new administration led by Biden and Vice President-elect Kamala Harris. “When a new administration takes office, it will need time to formulate policies. At this point, it looks highly likely that Biden has won. The National Security Council will conduct highly professional transition procedures. There is no doubt about this.”

Additionally, he said that Biden’s preparations appear to be in order, saying, “This is what makes America great. Even in extremely difficult times, power has been transferred peacefully.”

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U.S. Treasuries yields rose. With hopeful news about the effectiveness of the COVID-19 vaccines, optimism for economic normalization is rising in the background. Fed Chair Jerome Powell will participate in a San Francisco business group event on the 17th and will speak with former San Francisco Fed official Alex Mehran.

Fed Vice Chair Lael Brainard? Wait, Clarida. In a speech on the 16th, Clarida emphasized that achieving the new goal of tolerating a 2% inflation rate for the near term requires “the Fed to use all tools.” He made clear that improving unemployment alone would not justify tightening. He again signaled a policy of supporting the economy with long-run easing. The Fed purchases $120 billion per month of U.S. Treasuries and mortgage-backed securities (MBS) to support market functioning and the economic recovery. The vice chair explained, “We will continue to assess asset purchases to best support maximum employment and price stability goals.”

With policy rates effectively at zero, further easing measures including additional asset purchases are being considered. There is speculation that expanding the pace of purchases or buying longer-dated government bonds could enhance monetary easing. It was noted that considering implementing yield-curve control, modeled after the Bank of Japan’s approach, would be natural for the Fed. He added, “We still view asset purchases as one of the policy tools, but since the current purchase program is functioning well, we are not considering that at this time.”

He also argued that the economy has a “big hole” due to the COVID-19 outbreak and that substantial additional monetary and fiscal policy support is likely needed. He urged the government and Congress to implement additional COVID-19 relief measures. On the other hand, given the announcement that two COVID vaccines show high efficacy, he pointed out that the recovery pace could be considerably faster than during the Lehman Brothers shock, and there could be scenarios where the rebound exceeds prior expectations.

【U.S. stock trading strategy】

U.S. stocks continue to rise and hit new highs. The day’s notable gainers included the Russell 2000. The rally among small- and mid-cap stocks is prominent, and the “vaccine rally” is led by stocks that had been sold off during the COVID crisis. Many of these stocks also weigh on the Dow, contributing to its gains. Meanwhile, high-tech stocks that had been market leaders are facing resistance to higher levels. On an individual basis, this trend is very clear. Thus, the focus in U.S. stocks is clearly shifting. The reason I am long the Dow and the Russell 2000 now is the backdrop described above. Fortunately, earnings are growing steadily.

Still, the resurgence of the “vaccine rally” is evident. Following Pfizer, Moderna has also appeared. For some reason, these stories tend to surface on Mondays. It is truly “Vaccine Monday.” Will next Monday bring some positive vaccine-related news as well? In any case, such reports appear suddenly, making it a market environment where short sellers tend to incur losses. In this market, easy short selling only expands losses. Even if you point to overvaluation or other cautions, the market is rising as a fact. To generate returns, it is important to keep up with the market.

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