Wall Street Declares the Election Winner

The race for the presidency may still be too close to call. But Wall Street has already declared a winner: technology stocks.

The Nasdaq rose nearly 4% yesterday, easily outpacing the gains from the other indices . . . although even the S&P 500 index had its best day since June.

Big technology stocks powered the way. The technology five stocks that have the greatest weight on the Nasdaq — Apple, Microsoft, Amazon, Facebook and Google’s parent Alphabet — booked gains in the 4% to 8% range.

The main reason for this is the convergence of politics with a weak economy.

The ebbing of the so-called blue wave has an immediate effect. And it goes further than the industries poised to benefit from $2 trillion of infrastructure and green energy spending. This was a campaign idea from former Vice-President Biden.

The ending of the blue wave sharply lowers the likelihood of a big stimulus plan to help the economy recover from the pandemic.

The ending of hopes for major stimulus puts pressure on the Federal Reserve to do the heavy lifting once again.

And, as if on cue yesterday, the yield on the 10-year Treasury fell 0.13 percentage points to 0.76%. That was the biggest drop in yield since March.

In other words, the market is saying that interest rates will stay lower for longer. I believe they will remain low for many years.

This “new” reality is the same as the “old” reality. So, investors simply reverted to trading existing trends.

Big technology stocks have proved to be the best place to benefit from this trend. Add in consistently solid profit growth and strong balance sheets and you have Wall Street’s safe haven plays.   

The Big News

U.S. Tops 100,000 Daily Cases for the First Time

The U.S. on Wednesday recorded over 100,000 new coronavirus cases in a single day for the first time since the pandemic began. Hospitals in some areas are feeling the strain. More than 50,000 people are currently hospitalized with Covid-19 in the U.S. Deaths related to coronavirus, which lag behind case reports, have increased 21% in the last two weeks.      

Stock Market Will Tolerate Some Uncertainty

If the presidential election is decided within a week, Wall Street is fine with that. But if the prospect of major unrest on the streets or a major challenge to the results happens, all bets are off. “My number one concern, which I think is a very real concern, is anarchy,” said Scott Minerd, the global chief investment officer at Guggenheim Investments, to the media.     

Large Market for Covid Vaccines

Wall Street loves the vaccine industry. Analysts at Morgan Stanley estimate that sales of Covid-19 vaccines could top $10 billion a year in developed countries. Meanwhile, the analysts at Credit Suisse think sales could top $10 billion in the U.S. alone. They believe shots would be needed every year, just like flu vaccines.  

AstraZeneca Optimistic on Its Vaccine

AstraZeneca expects results by yearend from trials of the coronavirus vaccine it is developing with Oxford University. AstraZeneca also said it had committed to supplying the vaccine at no profit “in perpetuity” to lower income countries. Fingers are crossed the vaccine trial is successful.        

Another Mini-Boom Thanks to the Pandemic

After transforming the fortunes of hand-sanitizer and soap producers, the pandemic is doing the same for another industry. The lucky winners are the manufacturers of outdoor heaters. A wave of new restrictions has been imposed on indoor gatherings in western countries heading into winter. This has set off a scramble for heaters that will allow people to socialize safely — and warmly.     

The Coronavirus Numbers

Here are the numbers from Thursday at 8 a.m. ET from Johns Hopkins University:

  • 48,215,732 Infected Worldwide
  • 1,227,096 Deaths
  • 9,488,875 Infected in the U.S.
  • 233,734 Deaths in the U.S.

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What’s Next

The so-called “blue wave” trade has been going on since the summer. And it accelerated a lot recently. Cyclical and industrial stocks were riding high.

But now, I expect it to completely unravel.

After all, the path of the virus pandemic was always a much more significant driver for markets than the outcome of the election alone.

Or as one trader told the Financial Times, “Now we are back to where we were before the blue wave trade. We are back to fundamentals.”

That will favor growth stocks – like technology stoks – over stocks dependent on the strength of the economy.

In addition, the potential for a divided government also helps healthcare stocks. It’s another reason healthcare is actually my favorite sector.

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Yours in Health & Wealth,

Tony Daltorio

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