Weekly Snapshot November 16th, 2020

Market Review: Week Ending 11/13/2020

Boosted by Pfizer’s announcement on Monday that a vaccine developed with BioNTech was more than 90% effective in trials, the S&P 500 Index rose 2.2% last week, finishing at a record closing high of 3585.1 News of the vaccine sparked a large rotation in Value stocks and companies expected to be benefit from a return to normalcy, as the Index was led by the Energy sector (+16.9%), Financials (+8.3%) and Industrials (+5.4%), while the leading sector throughout the pandemic, Technology, finished down 0.7% (after rising 9% the week before on fears of rising virus cases).2 The irony is the virus’ 3rd wave is now spreading indiscriminately throughout the country with daily cases topping 170k (up over 50% in a 2-week period), putting pressure on states to revisit stay-at-home mandates. Stocks rallied despite the virus and despite fading hopes for a 5th Covid-19 relief bill in the lame duck period, and despite the fact that President-Elect Biden’s apparent victory nearly two weeks ago has yet to be officially declared.1 It is clear that investors were willing to look through growing stay-at-home risks, with stocks like Zoom and Peloton each falling ~20% last week, while previously depressed stocks like Valero Energy (+34% last week), American Express (+18%) and Delta Airlines (+16%) benefitted from the rotation.2 The week’s most important economic report, on consumer inflation, created no immediate concerns as CPI rose 1.2%y/y (+1.6% ex-food/energy), though the 10-year Treasury Bond yield continues to creep higher, finishing the week at 0.89%. Like much of the economy, inflation has taking on a “K” shape, with certain items most in demand during the pandemic reporting significant price increases (housing, cleaning products, used cars and meat/fish/poultry to name a few) while others where demand has collapsed (gasoline, hotel stays, airline travel and dress apparel) have seen prices fall, resulting in modest pressure on overall CPI so far.3 Still, a recent poll of institutional investors shows that concerns of rising inflation in the next 12-18 months is a majority view and could be the factor driving rising long-term interest rates.3


  • Will the rotation continue? – Value stocks outpaced Growth stocks on the day the vaccine news was released last week by the largest margin since 1985, according to JP Morgan.3 Small-cap stocks also spiked, as the Russell 2000 Index rose 6.1% last week, finishing at its highest close since August of 2019.3 Both value and small-caps have badly trailed the growth-dominated S&P 500 Index during the pandemic and in recent years, as the largest market cap companies (Apple, Google, Amazon, Microsoft and Facebook) which make up nearly 24% of the S&P 500 Index have navigated the economic landscape better than most.2 Combining the two out-of-favor segments into an asset class, small-cap value, bears watching as this group trades at a 60% discount to their normal valuations, the largest discount in their post-war history.3 As the Russell 2000 Value Index has a total market value of $1.5T, it is roughly the same size as Amazon.com alone. If investors continue to discount a more normal economy based on the hopes of a vaccine, it won’t take much of a rotation out of the large Technology winners into small-cap value stocks to result in large gains in this segment, given its relatively small size.3

As always, we appreciate your confidence in our team.

Fundamentum Investment Committee
Paul Danes, CFA® – Investment Committee
Trevor Forbes – Investment Committee
Matt Dunn, CFA® – OSJ Supervisor


  1. Wall Street Journal, 11/13/20
  2. FactSet, 11/12/20
  3. Barron’s 11/13/20

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