As long expected, the reaction to the most positive COVID-19 news we've had is a big value rally. While the Nasdaq trades basically unchanged in the first session after the Pfizer news, the small cap Russell 2000 was up over 5%. The iShares S&P 500 Value ETF $IVE outperformed the Growth ETF $IVW by ~4.8% (an 8.5 standard deviation move!), the biggest ever growth underperformance since the ETFs launched in May 2000.
Slap big tech down, and it was the best day ever for the equal-weight S&P 500 against the normal market-cap weight.
While this was a historic day in the market, let's step back a bit. Value is still a big underperformer to growth looking at any horizon in recent memory beyond the most recent two months. There has (rightly) been a lot of skepticism about the durability of any value outperformance.
The question now becomes - with a vaccine in sight, will value go back to outperforming growth for the first time in forever? Or will we just go back to our normal state of tech stocks dominating and reclaiming its long-held position of market leadership?
First, a word of warning. Tech isn't exactly a safe haven asset, despite everyone assuming that is the normal state of affairs. Tech is still trading at a historically high multiple, so even though it was the most stable asset over the past few years, it isn't a "safe haven"
And valuations have swelled in recent months on expectations that our COVID-stricken world will be the normal state of affairs for the next few years. Before it was a question of if - will the world go back to the what it was like pre-pandemic?
But now, it's more than ever (since the pandemic started) a matter of when. What happens when everything returns back to normal? Will we all continue to compulsively but stuff on Amazon? Order from Grubhub? Ride our Pelotons instead of go to the gym?
My raison d'être for writing is to always push back on the "this time it's different..." narrative. What we saw on Monday was proof of that - people want to get back to normal. There will be changes at the margins - people love their Pelotons and having food delivered to their houses and sitting on their couches instead of a movie theater. However, those were all changes that were happening before the pandemic even hit - it just sped up those trends.
Until we're proven otherwise, we should assume today was a shaking-out of the excesses of positioning. We're getting back to normal life - but we're all still going to be getting our Amazon Prime email notifications on Gmail and Instagramming on our iPhone 12s. Big Tech will keep taking all of our money, no matter what.