What's Good and Bad in Retail

By Nicholas Jasinski |  Tuesday, November 17

Breather. Small-cap stocks loomed large today, with the Russell 2000 ticking up 0.4% to set its third-straight record close. The index has rocketed more than 16% higher in November, far outpacing large-cap indexes.

Positive vaccine news and the removal of some election-related uncertainty has kept investors’ focus on the long term—and away from the recent spike in coronavirus cases across the globe. That has been particularly bullish for smaller and more economically sensitive companies.

U.S. large-cap indexes have had a strong start to November themselves, but their rally paused today. The Dow Jones Industrial Average ended the day down 0.6%, the S&P 500 fell 0.5%, and the Nasdaq Composite lost 0.2%.

Bullish investors won’t read too much into those small declines—pullbacks are not unexpected after a blistering run. And it has been quite a run over the past few weeks: Just under 90% of S&P 500 stocks closed above their 200-day moving averages on Monday, according to Bespoke Investment Group. That’s the highest proportion since 2014. Mean reversion is a powerful force.

There was little incremental news to change investors’ theses today. Pfizer's CEO said it had achieved a safety milestone for its Covid-19 vaccine candidate. Analysts gushed over Moderna’s preliminary reading suggesting 95% effectiveness of its vaccine candidate from yesterday. All good news, without a doubt. But others underlined the fact that even with tens of millions of doses ready to distribute, serious challenges remain to achieving widespread immunity to Covid-19 in the U.S., let alone the rest of the world. It won't happen overnight.

Meanwhile, the U.S. recorded 148,532 new cases yesterday, according to the Covid Tracking Project. That’s down from Friday’s daily record of more than 171,000, but over 30,000 more than the week-earlier tally. More states and localities have tightened restrictions, closing schools, shortening dining hours, or limiting private gatherings.

Speaking at a virtual event today, Federal Reserve Chairman Jerome Powell gave a cautious outlook, calling the rising cases the greatest near-term threat to the unfolding economic recovery.

“The concern is that people will lose confidence in efforts to control the pandemic, and...we're seeing signs of that already,” Powell said at the event, which was organized by the Bay Area Council Business Hall of Fame. He reiterated recent marks that the Fed won’t be tightening monetary policy anytime soon, and that Congress should really pass some fiscal stimulus already—especially given the potential negative economic impact of the recent surge in Covid-19 cases.

It's possible for investors to hold two ideas in their minds at once: that the current environment is bad, bad, bad, but that there's also plenty to be optimistic about over a longer time frame.