While the Pandemic Has Caused Incalculable Damage, There Will Continue to Be Returns

The markets today, Tuesday, viewed several hours before opening, appear poised to prove again the volatility and changeability of the current investing environment.

And in at least one case Christmas came early yesterday.

At time of writing, hours before the North American market opening, the NASDAQ is in the green but other indicators including the DOW and the S&P 500 are firmly in the red.

This combination reflects a slowing in yesterday’s rally when those two indices set new records, driven by vaccine news from Moderna Inc. in a limited repeat of last Monday’s announcement from Pfizer Inc.

In fact, the two rallies are different, according to Gavin Graham, financial analyst and media commentator. Even though Moderna claims a higher efficacy level than Pfizer and its vaccine can be more easily stored and transported, the Moderna announcement had less effect than Pfzer’s news.

Graham points out that while Moderna’s share price shot up, the rotation from the perceived beneficiaries of the pandemic such as the FAANG tech stocks and food retailers in favour of economically sensitive sectors such as travel, leisure, non-essential retailing and industrials continued but at a subdued pace.

“It’s evident that once it became apparent that healthcare companies had managed to develop an effective vaccine against COVID 19, the market began to price in a return to something much closer to pre-pandemic life,” he explains.

Along with the work of Moderna and Pfizer, the research of other companies such as AstraZeneca plc. and Sanofi SA could mean that COVID 19 will be under control by the second half of 2021, Graham projects. That target is what the markets seem to be pricing in at this time.

In another surprise, after yesterday’s close of trading Tesla’s share price surged with  the announcement that it will join the S&P 500 index, a move that will boost both the price and market profile. This follows its drop in price in September after its exclusion from the list of companies being added at the time. “This was a surprise after the snub in early September,” says Dan Ives, Managing Director of Equity Research at Wedbush Securities Inc. in New York. This change clarifies TESLA’s position for indexing and removes several questions about its future. “Christmas came early for Tesla shareholders with this news,” Ives says.

Consumer and consumer-related categories can be viewed from several perspectives and I’m covering several of them this week. Home Depot Inc. reports its third-quarter results today, very possibly with increases due to demand for tools and materials for home rebuilding and remodeling projects undertaken by individuals forced to stay at home during the crisis. Analysts and investors will listen for commentary on the outlook for Christmas sales and the potential impact of a well-funded stimulus program.

Most financial institutions rating Home Depot, such as Stifel Nicolaus and Credit Suisse have it listed as a ‘Buy’ while a few such as Piper Sandler and Oppenheirmer have it listed as a ‘Hold’.

Today’s report from Home Depot may make for an interesting comparison with tomorrow’s report from Lowe’s Companies Inc.

The moral of this story is that investing in this environment will often be a volatile roller coaster ride and that while the pandemic has caused -- and will continue to cause --incalculable damage, there will continue to be returns.

Disclosure: I do not own shares in any company mentioned in this column.

Related: The Markets Appear Poised to Start on a Positive Note