Before The Bell - As we hit the midway point of November, the month has thus far proven to be a very constructive one for those long equities. The Dow Jones Industrial Average has produced two-straight winning weeks, including last week’s gain of 4.1%. That is not to say it has be clear sailing for investors, as the last fortnight of trading has seen some bifurcated performances for the major averages, the product of some notable sector rotation. Of the major indexes, the NASDAQ Composite has been the most volatile recently, as investors from time to time have taken some profits in the technology sector, which has been the best-performing group since the outbreak of the coronavirus pandemic stateside in mid-March. This scenario is looking like it will play out again today on Wall Street. 

The two major catalysts for stocks this month have been the early November election results and hopes that a COVID-19 vaccine may be close to coming to fruition (more below). As far as the election goes, Wall Street cheered the possibility of a divided government in Washington. Such would likely result in a status quo for some of the business-friendly policies, most notably the corporate tax rate remaining at 21%. Then, last week the averages, particularly the Dow 30, rose on news that Pfizer (PFE), in collaboration with European-based BioTech, has seen great success thus far in its testing of its COVID-19 vaccine candidate. This news is helping to offset worries about a second wave of coronavirus cases this fall and fears that many states may again be contemplating shutting down parts of their economies to slow the virus’ spread.

The sector rotation aside, the recent rally on Wall Street has been pretty encompassing. Investors should note that the small-cap stocks, which generally tend to lead the market in one direction, have been in great demand recently, with the small-cap Russell 2000 in record territory last week for the first time in more than two years. This may be an indication that the bulls may have some more near-term room to run, but we do warn that volatility could return if the COVID-19 situation, which saw notable jumps in cases in 49 states last week (positive cases topped the 11 million mark this weekend), were to worsen further. Against this backdrop, and with market valuations looking quite frothy right now, we recommend that investors continue to give the blue-chip stocks consideration. Many of these issues, and a host of other stocks of financially strong companies, comprise Value Line’s list of equities ranked 1 (Highest) and 2 (Above Average) for Safety.

Looking at the week at hand, investors may want to give the retaining stocks a close look, as many of the retailers will begin to report October-period results, highlighted by the latest quarterly results from home-improvement giant The Home Depot (HD) and mass merchandiser Walmart (WMT). In particular, investors may want to look at what each company has to say about prospects for the upcoming all-important holiday shopping season. In the retail industry, investors would be prudent to focus on those companies with the best online shopping infrastructure, as cyber sales are likely to jump significantly this holiday season with coronavirus social-distancing measures still very much in place around the globe. Tomorrow’s latest monthly figures on retail sales (due at 8:30 A.M. EST) also will bring the retailing stocks into Wall Street’s focus.

In addition to the retailing sector, the news from the business beat will bring attention to the housing and homebuilding sectors. The residential construction data since mid-June have been very strong, with home sales being helped by historically low mortgage rates and a growing migration by urban dwellers to the suburbs. This week, we will get reports on housing starts and building permits (Wednesday) and existing home sales (Thursday). Will this data give a further boost to housing and home improvement stocks, many of which have performed very well since the broader market’s nadir in late March? We would recommend that investors proceed cautiously, as valuations in the sector are frothy right now and any uninspiring news could prompt profit taking in the group. Meantime, other reports due include the latest data on industrial production, weekly initial unemployment claims, and the leading indicators.

Before the opening bell, the futures point to a sharply higher start for the U.S. equity market. The main indexes in Asia finished with notable gains overnight, while the major European bourses are trading well into positive territory as trading moves into the back half of the session on the Continent. Driving equities higher around the globe was first positive economic data out of China, and now more so another very encouraging report on the coronavirus vaccination front. This morning, Moderna (MRNA) reported that its COVID-19 experimental vaccine candidate was 94.5% effective in preventing COVID-19, based on interim data from a late-stage clinical trial. Moderna joins Pfizer as the second United States-based company in a week to report clinical results that far exceed expectations. In response, shares of Moderna are up sharply in pre-market action, and the growing hope that a COVID-19 vaccine may not be too far away is again, much last Monday when the Dow 30 produced a gain of more than 1,100 points, is giving a big lift to many of the large- and small-cap stocks. Investors, though, should note that the tech-heavy NASDAQ Composite is not getting much of a boost prior to the opening bell on Wall Street. Stay tuned. – William G. Ferguson

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.