Playing The Long Game

By Nicholas Jasinski |  Monday, December 21 Eyes Straight Ahead. A new, potentially more contagious variant of the coronavirus identified in the U.K. set off a wave of new travel restrictions and economic lockdowns over the weekend. That has been enough to knock stock indexes from record highs in recent days, but the prevailing long-term bullish thesis on the market remains unchanged. A U.S. fiscal stimulus bill is agreed and on the way, Covid-19 vaccination campaigns are ramping up across the globe, and the trajectory to a post-pandemic economy is increasingly clear. Central banks continue their ultra-easy monetary policy stance. As long as the existing vaccines remain effective against the new coronavirus variant and it doesn't appear to be any more deadly, the prevailing outlook on Wall Street will be positive in the face of near-term reopening setbacks or  the spread of the virus variant beyond the U.K. That long-term conviction showed up in today's trading. Futures were deeply negative before this morning's open, as the shutdowns in Europe served as a reminder that Covid-19 is far from gone. But by the afternoon, indexes were at the break-even line and continued to rise into the close. Given a chance to think through the implications, long-term focused investors continued buying into the market after twitchier traders and quants sold at the open. After being down 1.4% in the morning, the Dow Jones Industrial Average was up 0.1% by the close. The S&P 500 ended the day down 0.4% and the Nasdaq Composite slipped 0.1%. London's FTSE 100 index dropped 1.7% today, however, as several dozen countries closed their borders to the U.K. The country is under a Tier 4 lockdown on its previously three-tiered scale. A major Brexit-related deadline is also looming at the end of next week. On the Continent, the European Medicines Agency said today that the Pfizer/BioNTech Covid-19 vaccine—which is already being administered in the U.S. and the U.K.—was safe and effective, with full authorization coming as soon as this week. The pan-European Stoxx 600 closed down 2.3%. Airline stocks had a particularly bad day. A new wave of international travel restrictions delays the industry's recovery even more. It's a larger near-term setback for airlines than the broader economy and market. Shares of carriers including United Airlines Holdings and American Airlines Group each lost more than 1.5%, while Southwest Airlines slipped just 0.5% thanks to its comparatively more domestic-focused business. Cruise lines, hotels, movie theaters, and casinos were among today's other market laggards. Financials, on the other hand, had by far the best day of any group, led by shares of big banks. On Friday evening, the Federal Reserve unexpectedly said it would allow the U.S.'s largest financial institutions to resume buying back their shares in the first quarter, up to a limit. Goldman Sachs stock jumped 6.1%, Morgan Stanley rose 5.7%, and JPMorgan Chase added 3.8%. Citing the potential for those shareholder returns to resume in 2021, many of Wall Street's top market strategists and chief investment officers called financials among their favorite sectors for 2021. More on that below.

 

DJIA: +0.12% to 30,216.45 S&P 500: -0.39% to 3,694.92 Nasdaq: -0.10% to 12,742.52 The Hot Stock: Apartment Investment & Management  +7.1% The Biggest Loser: Occidental Petroleum -5.7% Best Sector: Financials +0.8% Worst Sector: Energy -3.2%