It’s been a good couple of weeks for those who have been looking for signs that the COVID-19 crisis is nearing its end. Yes, cases continue to rise in record-breaking numbers every day, and it seems as though governments in Canada and the U.S. are losing control of the virus’ spread, but with a new U.S. president expected to take office in January—one who will likely take a different approach to battling the pandemic—people are feeling a little more optimistic.
There’s also a potentially major breakthrough on the vaccine front. On Monday, Pfizer announced that its vaccine was found to be 90% effective in preventing novel coronavirus infections. Could this really be the end of COVID-19? Stock markets seem to think so, with the S&P 500 up by 5.6% since Nov. 3, and the S&P/TSX Composite Index up by 5.2%.
The last couple of weeks have given investors a glimpse into what a post-pandemic stock market could look like. Many of the sectors that have been hit hard over the last several months saw big gains, while some of the companies that have benefited from a work-from-home world crashed hard. Here’s a quick rundown of just some of the industries and stocks that have seen big price movements between Nov. 3 and Nov. 11.
Sectors and stocks that experienced a share price increase above the S&P 500’s 5% gain
- Cineplex: +30.5%
- Air Canada: +28.7%
- Royal Caribbean Group: +23.1%
- Marriott International: +21.1%
- S&P 500 Energy sub-sector: +13.7%
- S&P/TSX Composite Index Energy sub-sector: +12.6%
- S&P 500 Airlines sub-sector: +12.1%
- S&P/TSX Composite Index Capped REIT Index: +12.06%
- S&P/TSX Composite Index Banks sub-sector: +6.8%
Sectors and stocks that experienced a share price decrease, or and increase below the S&P 500’s 5% gain
- 2U, Inc (and education software company): -17.4%
- Cargojet: -15.2%
- Zoom Video Communications: -8.45%
- BRP (Ski-doo and Seadoo makers): -8.3%
- Fedex: -2.9%
- The Kroger Co. -2.46%
- Home Depot: -0.35
- Loblaw Companies: +1.2%
- Amazon +2.4%
- NASDAQ: +3.4%
You can see what’s going on here. Things that did well since March—WFH-focused tech stocks, delivery companies, consumer discretionary businesses—are taking a hit, while there’s optimism that the sectors and companies that were left for dead—airlines, energy, commercial real estate—could come back to life. Stock picking isn’t always complicated: buy low, sell high.
The vaccine news has resulted in a lot more optimism for stocks in general. Goldman Sachs raised its year-end price target for the S&P 500 to 3,700 from 3,600, and thinks it will rise by 21% between Nov. 10 and the end of 2021.
However, as tempting as it may be to pour money into these stocks, many of which are still well below their pre-pandemic highs—Air Canada is down 62% since January—be careful. It may still be months before a vaccine gets approved and then even longer before everyone has access to it. It’s still unclear who will get shots first or how the world will roll it out both quickly and safely. Each industry has specific issues it needs to contend with too—will travel ever bounce back to its previous highs if business people are more comfortable meeting online?
Any hiccup with Pfizer’s vaccine, a potential rollout or really anything that could prolong the pandemic beyond the summer will also cause these gains to reverse. Indeed, Pfizer’s stock price, which climbed nearly 8% on the day of the vaccine announcement, has dropped by 3.5% since, in part because CEO Albert Bourla sold $5.6 million worth of stock on Monday, causing investors to wonder if maybe the news was too good to be true. Pfizer said the sale occurred because of a predetermined plan where stock must get sold if shares hit a certain price. Still, people thought something was amiss based on all the headlines it generated, and that spooked investors.
Get more diversified
What all of this indicates is that now may be a good time for investors to take another look at the asset mix in their portfolios and ensure there’s a good balance between companies that have done well over the last while and ones that could do well in the future. You don’t want to go whole hog into one of these beaten-down sectors, but it’s also time to stop ignoring them.
In a note to investors, Mark Haefele, UBS’ chief investment officer, said, “investors need to diversify for the next leg, toward more cyclical parts of the market that have lagged behind in 2020, and away from big tech and the primary stay-at-home beneficiaries.”
However, Goldman Sachs added in a note that investors shouldn’t ditch the outperforming tech stocks. “The combination of extreme valuation dispersion and a vaccine catalyst should create a powerful tactical rotation into value stocks, (but) from a strategic perspective growth stocks should remain attractive. The vaccine-driven value trade is likely to resemble other value rallies of the past decade, which have rarely lasted more than a few months.”
For those who do want to buy up some of these undervalued stocks, it’s more important than ever to purchase companies that have strong fundamentals—good balance sheets, smart executives at the helm, low debt—because there’s still a real possibility that the company you bet on doesn’t make it through to the other side.
While the last few days have given investors an indication of what stocks and industries investors think will do well over the next months and years, take it slow. You can start buying back into some of the stocks you ditched when the pandemic began, but don’t forget: This thing isn’t over yet.
MORE FROM BRYAN BORZYKOWSKI:
- How investors can prepare for lingering fallout from the COVID-19 pandemic
- How to tell if a company is honest
- What dividends can tell you about a company’s health
- What P/E can tell you about a stock, and what it can’t
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