Markets Mixed Due to Mild Vaccine Concerns

Mildly concerning vaccine data and other headwinds weighed on the markets on Thursday as the indices closed mixed.

News Recap

In the short-term, there will be optimistic days where investors rotate into cyclicals and value stocks, and pessimistic days where there will be a broad sell-off or rotation into “stay-at-home” names. However, in the last two sessions, markets largely traded sideways.

In the mid-term and long-term, there is certainly a light at the end of the tunnel. Once this pandemic is finally brought under control and vaccines are mass deployed, volatility will surely stabilize, and optimism and relief will permeate the markets. In fact, CNBC personality Jim Cramer said that beating COVID-19 would feel like “the end of prohibition.” Stocks especially dependent on a rapid recovery and reopening such as small-caps should thrive.

Markets will continue to wrestle with the negative reality on the ground and optimism for an economic rebound in 2021. While more positive vaccine news continues to trickle in day by day, there is still discouraging COVID-19 news, economic news, and geopolitical news to consider. Amidst the current fears of a double dip recession with further COVID-19-related shutdowns and no stimulus, it is very possible that short-term downside persists. However, it’s encouraging that Pelosi and McConnell are talking again. If a stimulus passes before the end of the year, it will certainly boost sentiment.

Due to this tug of war between good news and bad, any subsequent move downwards will likely be modest in comparison to the gains since the bottom in March and since the start of November. It is truly hard to say with conviction that another crash or bear market will come. If anything, the constant wrestling match between sentiments will keep markets relatively sideways.

Therefore, to sum it up:

While there is long-term optimism, there is short-term pessimism. A short-term correction is very possible. But it is hard to say with conviction that a big correction will happen.

After two straight record closes, the S&P somewhat pulled back on Thursday. There are a few indicators that show that the S&P could face some near-term volatility, however, these indicators have largely stabilized this week. The S&P’s stabilization in volume for one is a big deal. After volume sharply declined from November 9th, there were doubts on the sustainability of the rally, but it has largely been stable over the last few weeks.

Low volume, especially a sharp drop in volume, means that there are fewer shares trading. Lower volume also means less liquidity across the index, and an increase in stock price volatility. Therefore, a stable volume trend means that volatility may decrease. Again though, this is a market that trades largely on news and sentiment, so anything could change.

The RSI of 65.03 also keeps the S&P in a HOLD category. Although the RSI has not moved much this week, be very wary if it exceeds the overbought level of 70 - because it’s approaching – however, sideways trading should mute this.

With this data, further pullback from these levels would not be a shock… but another surge based on good news would not be a shock either. Because of all of the uncertainty, a HOLD for the S&P is an appropriate call. For an ETF that attempts to directly correlate with the performance of the S&P, the SPDR S&P ETF (SPY) is a good option.

The premium analysis this morning will showcase a “Drivers and Divers” section that will break down some sectors that are in and out of favor. Dear readers, do me a favor and let me know what you think of this segment! Always happy to hear from you.

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