Top Weekly Themes
- V-Day in the U.K. – Early last Tuesday, the U.K. became the first country to approve and administer the COVID-19 vaccine to the public. The first of the U.K.’s 800,000 doses of the Pfizer/BioNTech vaccine was administered to Margaret Keenan, a nearly 91-year-old grandmother. Following Britain’s approval last week, Pfizer’s logistics team began transporting the vials from Belgium. This was no small feat considering they need to be stored at nearly 100 degrees Fahrenheit below zero. As of last Thursday morning, the Pfizer/BioNTech vaccine had yet to be approved by the U.S. Food and Drug Administration (FDA), but indications point to imminent approval. If approved, inoculations could begin within days. We believe these actions mark the beginning of the end to the COVID-19 pandemic that has deeply impacted the world.
- Raising Capital like its 1999 – last week saw several internet software and services names come to public markets, the most recognizable being Airbnb (ABNB) and DoorDash (DASH). In its first day of trading, DASH leaped 86% from its IPO price, rewarding the company with a market capitalization over $71 billion, nearly half the size of McDonald’s. According to data from Dealogic and the WSJ, over $140 billion has been raised this year, more than the 1999 record set during the dot.com bubble. Only time will tell whether recent highflying stocks will prove to be good investments, but we view the risk/reward of many tech sector stocks as unattractive at current valuations.
- Facebook Under Fire – Early last week, the Federal Trade Commission (FTC), as well as 47 states, filed separate antitrust suits against Facebook. In a move long telegraphed in the media, the FTC’s suit seeks to force Facebook to spin-off WhatsApp and Instagram, as well as limit future acquisitions. The suit’s claims are that Facebook illegally attained market power through the Instagram and WhatsApp acquisitions, two transactions the FTC approved. Following the announcement, Facebook’s stock dropped approximately 2%. However, the stock remains 34% higher than where it started in 2020, as investors continue to look past such threats. Our current take on the situation is that greater oversight is likely, but a breakup of Facebook is not forthcoming. Although the latter could potentially result in more value for shareholders.
|Equities||Week (%)||YTD (%)||1-Year (%)||3-Year (%)||5-Year (%)||Div Yield (%)|
|Russell 1000 Value||0.8||1.5||4.2||19.1||57.2||2.26|
|Russell 1000 Growth||(0.1)||33.4||38.4||80.7||148.2||0.75|
|MSCI EM (Emerging Markets)||1.3||15.1||22.6||22.7||82.1||2.14*|
|Bloomberg Barclays US Aggregate||0.0||7.1||7.2||16.7||23.5||1.18|
|Bloomberg Barclays US High Yield – Corporate||0.4||6.2||7.7||19.1||48.1||4.41|
|Bloomberg Barclays Municipal Bond||0.2||4.9||5.0||14.2||21.1||1.13|
|Bloomberg Barclays Global Aggregate x US (Country)||0.1||8.7||9.5||14.1||25.5||0.69|
|Crude Oil WTI (NYM $/bbl) Continuous||2.5||(23.4)||(21.0)||(18.4)||27.3||46.8|
|Natural Gas (NYM $/mmbtu) Continuous||1.8||16.6||12.8||(7.9)||26.7||2.6|
|Gold NYMEX Near Term ($/ozt)||(0.2)||20.7||25.4||47.3||70.9||1,833.6|
|Copper Cash Official LME ($/mt)||0.4||25.3||27.4||17.9||68.7||7,712.0|
|Currencies||1 Week Ago||YTD||1-Year Ago||3-Years Ago||5-Years Ago||Current Level|
|U.S. Dollar per Euro||1.22||1.12||1.11||1.18||1.09||1.21|
|Japanese Yen per U.S. Dollar||103.77||108.68||108.71||113.54||121.53||104.41|
|U.S. Dollar per British Pounds||1.35||1.32||1.32||1.34||1.52||1.33|
Chart of the Week
For Value and Small Cap Investors, Christmas Comes Early.
- Following a very challenging start to the year for Value and Small Cap stocks, positive results from COVID-19 vaccine trials, and subsequent clarity on regulatory approval for use, provided a catalyst for cyclical stocks. The chart demonstrates the strength that these areas of the market have exhibited since the end of October. During this time, the S&P 500 Value and Russell 2000 Indexes returned 15.6% and 23.6%, respectively, compared to a 10.2% return for the S&P 500 Growth Index.
- The Financials and Energy sectors have been the biggest drivers of Value vs. Growth outperformance during this period. Each of these sectors contributed more than 100 basis points to Value’s 5% relative outperformance. Financials, in particular Banks, have accelerated higher amid rising interest rates and a better outlook for loan losses. Energy, a modest weight in the Index, has rocketed higher by nearly 40% since October as optimism of a return to normalcy improves the demand outlook.
- As a preview to our 2021 Outlook, we believe Value and Small Cap stocks will continue to have tailwinds as the global economy heals and life returns to normal.
Cash Still on the Sidelines but Elevated Sentiment a Risk
Elevated cash on the sidelines seems to be at odds with an S&P 500 making its 30th new closing high in 2020. To be sure, various sentiment indicators are running hot. However, as evident in the cash chart, it can take time for liquidity to be deployed. In addition, some of the sentiment indicators are survey-based and could imply how investors “feel” rather than what they are doing, represented by the SPY/QQQ/IWM investment flows and cash levels. In our view, current cash levels should be supportive of long-term equity performance, but excessive optimism could result in a pause or correction early next year.