Business

Resurgent airways, power and financial institution shares prepared the ground because the vaccine rally intensifies

Good morning, Bull Sheeters. It’s a risk-off Tuesday as stocks in Asia and Europe climb, and U.S. futures look set to add to yesterday’s gains. Energy, finance and travel stocks are leading the way; crude futures too are rallying.

Investors are cheering Monday’s vaccine rally 3.0, President-elect Joe Biden’s rumored selection of a very familiar face to run the U.S. Treasury, and further signs the transfer of power in Washington is finally getting into gear.

Speaking of transitions, we dig further into the pivot into value stocks below.

Let’s see where investors are putting their money.

Markets update

Asia

  • The major Asia indexes are mostly higher in afternoon trading with Japan’s Nikkei up 2.5%, reversing a multi-day slide.
  • Huawei’s grip on the world handset market is expected to decline significantly, dropping by about one-third over the next year as the larger impact of sanctions bite into a core business.
  • Japan’s extraordinary arrest and lengthy detainment of former Renault-Nissan CEO Carlos Ghosn was bashed as “harsh” and tantamount to a human rights violation, an influential team of U.N. lawyers has ruled.

Europe

  • The European bourses were in the green at the open with London’s FTSE 100 up 0.9% helped by a big surge from British Airways parent IAG (+5%).
  • Boris Johnson confirmed on Monday that Britain’s national lockdown orders will be lifted on Dec. 2 (with restrictions, of course) as the teetering economy heads into the Christmas season.
  • Still reeling from the Wirecard fiasco, German officials at Deutsche Boerse will expand the benchmark Dax from 30 to 40 listed firms, and introduce new quality criteria as part of its biggest makeover ever.

U.S.

  • The U.S. futures point to another solid open. That’s after all three indexes rallied on the AstraZeneca COVID vaccine news, with energy and bank stocks the big gainers.
  • Not everybody is bullish about the road ahead. Goldman Sachs has downgraded its GDP forecasts for the current quarter and for Q1 2021 as COVID cases soar across much of the country.
  • Shares in Tesla closed 6.6% higher yesterday after über bull Dan Ives at Wedbush Securities slapped a $560 near term price target on the EV maker. He also “upped his ‘bull case’ from $800 to $1,000, which would represent an over 100% pop from the stock’s current levels,” Fortune‘s Anne Sraders reports.
  • Meanwhile, the futures markets are pleased with president-elect Joe Biden’s apparent selection of former Fed chairwoman Janet Yellen as his new Treasury secretary.

Elsewhere

  • Gold has bombed lower over the past 24 hours, trading below $1,830/ounce.
  • The dollar is down.
  • Crude is up again on the vaccine news with Brent trading near $46.30/barrel.
  • Bitcoin is flat, hovering around $18,300.

***

Calling an end to the pandemic

The S&P 500 is up 1.9% since we got our first dose of positive vaccine news out of Pfizer/BioNTech on Nov. 9. We’ve gotten two more shots in the arm since, each coming on consecutive Monday mornings bright and early.

Public health officials seem pleased with the progress in the labs, and that’s lifting those corners of the markets that had been trampled for months by grim COVID data and lockdown measures.

The energy segment of the S&P 500 has soared 24.4% in the past month and financials are up 9.5% in that same period. Meanwhile, consumer discretionary, health care and IT are underperforming, at or near the bottom of the pack. It’s all part of what we’ve talked about here often, the great rotation into value stocks.

This big pivot is thanks to renewed vaccine optimism. Which leads me to one of the most bullish calls of the week, courtesy of Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management. “News on vaccine availability and efficacy is much better than expected, raising prospects for an end to the pandemic by 2021’s third quarter,” she writes.

No more pandemic by next summer? Where do I sign up for that?

Here’s more positive news. The U.S. economy is in very good position for a big bounce-back. And that’s thanks to the U.S. consumer, the engine of the economy.

“Households that have improved balance sheets,” she writes, “should help with a surge in consumption spending when the economy fully reopens. That scenario is led by upward earnings revisions for the Russell 2000 Index, which are at a 20-year high (see chart). Such a development has typically augured well for a full economic recovery.”

Here’s the chart she refers to, showing Russell 2000 earnings improvements hitting a once-in-a-generation high:

That’s something to be thankful for.

***

Have a nice day, everyone. I’ll see you here tomorrow. 

Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com

As always, you can write to bullsheet@fortune.com or reply to this email with suggestions and feedback.


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