Before The Bell - There is an old adage on Wall Street, which advises to “sell in May and go away”. The rationale for this phrase is that after investors buy aggressively on rising optimism to begin a new year, they begin to take profits along about May. The schedule was different in the pandemic year of 2020, as the stock market, down sharply in March on the rapid spread of COVID-19, began a sharp recovery soon thereafter that would lead several averages to all-time highs over the summer. A downturn occurred in September and October.

Wall Street historians also hold that autumn reversals are often followed by end-of-year rallies. Thus, while observers naturally associate the current rally with the elections, such a cycle may be at work.  The current rally has been spearheaded by the Dow Jones Industrial Average, especially during the last two sessions. The NASDAQ, the market's big winner in 2020, has stepped back this week, representing a rotation out of big tech stocks, such as Amazon.com (AMZN).

News developments apart from the elections were a clear factor.  The surge in the Dow--more than 1,100 points during the first two days of this week-- took hold after the announcement,  before the stock market opened on Monday, by drug giant Pfizer Inc. (PFE), and its Germany-based partner, that tests of their coronavirus vaccine indicated it is  more than 90% effective. That was followed soon by promising word that the FDA had granted fast-track approval for an Eli Lilly (LLY) antibody therapy. The task now will be to roll out vaccines and therapies in a speedy manner. 

Yesterday’s stock market opened in mixed fashion, with a further advance in the Dow but an initial retreat in the NASDAQ. Stay-at-home stocks, on a tear over the past few months, saw added profit taking, but more cyclical industrial names, which are sensitive to the vagaries of the business cycle, did well on the hopes that a viable vaccine would be a boon to the economy. So, shares of International Business Machines (IBM) rallied anew, as did fellow blue chip Honeywell (HON), one of a trio of recent entrants into that composite.

Meanwhile, after fading very briefly, the Dow firmed up and continued to progress over the rest of the session, finally ending matters ahead by 263 points. The NASDAQ, which sank late on Monday, gave back another 160 points yesterday in the aforementioned rotation out of technology. That composite was led lower by Amazon and Microsoft (MSFT). Such rotation serves to reduce sector excesses. We could see this bifurcated pattern continue over the next several days, as there are few other influences expected currently, as earnings season is winding down, the economic calendar is light, and the recent election results still are being challenged in long-shot efforts.

Looking out to a new day now, we see that the equity futures are pressing higher stateside, with the S&P 500 index futures and the NASDAQ joining in with the Dow to press higher. Finally, today is Veterans Day, a solemn 24 hours in which we remember the sacrifices, including the ultimate sacrifice, made by so many men and women over the past two and a half centuries to ensure that we continue to have a resilient democracy that can withstand all challenges.  – Harvey S. Katz, CFA

At the time of this article’s writing, the author held positions in one or more of the companies mentioned.