The Dow Jones group of indices were thought up in the late nineteenth century, a time when bloodletting was still a go-to medical treatment and when people got around on horses. Coal was starting to replace wood as a heating fuel and blocks of ice delivered to your door kept food fresh.

Their two main virtue back then: they’re easy to calculate by hand and they were better than nothing. Today, only the Dow Jones Industrial Average, consisting of 30 large-cap stocks and calculated in the same outmoded way, remains in common use. Nowadays, as I’ve written before, the Dow’s chief value is that it’s a sure-fire alarm bell that the user–mostly media commentators–doesn’t have the faintest clue about the stock market.

A similar, more general, cluelessness “tell” is talking about gold as if it were still money outside of places like China or India, where people don’t trust the banking system and where the ability to bury your wealth in the back yard is a key attribute. I’ve written on and off about gold over the years. You can search for more detail, but this post has a reasonable summary of my thoughts.

I bring this up today mostly because Trump’s latest brainstorm is to revive Judy Shelton’s nomination to the board of the Federal Reserve. Contrary to its prior unwillingness to approve her candidacy, the Senate now appears ready to vote in her favor. This, despite her lack of economic training or experience and the hodge-podge of mutually contradictory views she holds–including her crackpot advocacy of a return to the gold standard abandoned a half-century ago.

Lots of stuff has happened in a short period of time. Some of it is medical (vaccine test results), some political (Biden declared the next president; Trump refusing to concede; the world interpreting the latter, rightly or wrongly, as the start of an attempted coup), some economic (the resurgence of the virus, thanks in part to Trump superspreader rallies, forcing renewed business lockdowns; stock market yo-yoing).

Note: if I were a different person, or if I were still living in my hometown of Staten Island, I might not have the same list. But the welter itself would still be there.

Speaking as investors, it’s our job to filter information from noise strictly from an economic point of view.

While I suspect we will one day look back on the election as having spurred substantial economic and social changes in the US, it’s near-term result will be to remove a self-destructive economic illiterate from the White House. It’s not clear, though, how much better off the US will be, other than that–a year too late–we’ll finally admit the pandemic is a problem and try to control it.

But that’s mostly noise for now, I think.

The real information from this week, as I see it, is that it gives us a clue as to what will happen as the coronavirus comes under control and as Trump’s economy-slowing tariff and immigration policies are reversed. In particular:

–when the market senses the start of an economic upturn, stocks that investors have left for dead have an extraordinary resurgence. This is all about the idea that equity holders won’t be wiped out, that chances for survival have gone from zero to, say, 50%. This means a long-dated option on recovery, which is arguably all the stock is at the bottom, is worth a lot more than it was before. Airlines and cruise ships come to mind.

I think economic good news is too far down the road for the kind of rally we saw on Monday and Tuesday to be sustained. But studying those two days will give us an idea of the kinds of stocks that will do well and those that won’t

–former winners become losers, many times violently so, as economic interest shifts. Given the extreme outperformance of what I’ve been calling “capital flight” stocks, the ugliness of Monday/Tuesday losers shouldn’t be surprising. But growth stock investors are by nature optimists, so it’s good to have a reminder. For me, as an example. I’d moved a quarter of my most aggressive portfolio out of cf stocks into consumer discretionary + a Russell 2000 etf. That didn’t stop me from losing double the NASDAQ decline on those two days.

–the bounceback, if that’s what it turns out to be, on Wednesday and today will likely leave some former winners by the wayside. That will likely be another important indicator from Monday/Tuesday. Typically, a rebound during a transitional time like this will exclude the stocks investors, again rightly or wrongly, think are the least likely to prosper in a new, GDP growth-friendlier environment

What’s a little weird about this week is that my experience is that flashes of worry like Monday/Tuesday last longer than two days. So there may be more weakness to come. Still, I think what’s going on is more a minor relative valuation adjustment than a true change of direction.

It’s my birthday and I’m doing birthday things today. If I weren’t I’d be starting to work on my portfolio in two ways:

–I’ve got about a 3/4 – 1/4 split between tech-oriented secular growth exposure and (the 1/4) near-term economic growth names, mostly in Consumer Discretionary. I think I should try to increase the latter a bit

–in the secular growth part, I’ve got two tasks:

—-look at the carnage of the past two days and see if I can rearrange the furniture, that is, upgrade what I hold by buying things that have sold off a lot and selling things that have held up;

—-more important, I have to go through the portfolio name by name and ask myself how each company will fare as/when the economy returns to normal. For example, as/when we see an expansion of in-store shopping, what does this mean for online. How is a smaller pie split among, say, Amazon, Shopify, Walmart, Etsy…? I don’t own any of these, but my guess is that none would be stars but they’d rank from best to worst: AMZN, WMT?, SHOP?, ETSY.

the Pfizer vaccine

There’s concept and reality. The stock market is being driven by concept right now, the idea that in, say, six months a vaccine that will likely prevent the user from contracting covid will be widely available.

At some point, but not now, messy details will surface. We don’t know, for example, the cost (the vaccine was apparently financed by Germany, not the US–as Pence claimed it was yesterday). It needs to be stored in a super-cold refrigerator, not the regular ones in drug stores, so distribution is an issue. And the US, land of conspiracy theories, has larger contingent of anti-vaxxers that most other countries on the planet. So there’s an issue of how many people will take it.

Trump visibly losing it…

…in several senses:

–Late last week, Fox News-owner Rupert Murdoch seems to have decided that the risks of continuing to support Trump’s bizarre alternate version of reality outweigh the benefits. So Fox appears to be ceasing its role as the principal megaphone for Trump’s lies.

–According to Bloomberg, a source I trust, the Pennsylvania voting “fraud” case that Trump/Giuliani are trying to bring to the Supreme Court involves the validity of 7,800 ballots. This is far short of Biden’s 46,000+ vote winning margin, so it won’t change the result in PA. Nor does it address Biden’s wins in NV and AZ, which brought him to the 270 electoral vote finish line. The appeal is being financed by contributions being solicited from supporters online. A vintage Trump touch–a fine-print disclosure reveals that half the money raised goes to repaying campaign debt, not to funding court action.

a decisive shift in market sentiment

I think so, anyway. Typically, these are not one-day affairs. As I’m writing this before the Wall Street open, there’s a 3.6% spread between rising Russell 2000 futures and a falling NASDAQ. That’s not as wide as yesterday’s pre-market spread, but it’s still big and it’s still there.

Yesterday’s market played out more or less in the broad-brush style I’d thought. Stocks whose major attraction is that they benefit from continuation of the pandemic fell especially sharply. Economically-sensitive stocks left for dead over the past three quarters bounced even more emphatically.

I think, however, that between these two poles there are stocks that benefit from the pandemic but are the wave of the future anyway, and businesses for whom sunset is still coming, only much sooner because of it. The first group went down anyway, the second went up. At some point, however–but probably not today–individual investors will begin to look for value in the former; professional short-sellers will comb through the latter.

A secondary point: what may be being lost in the positive vaccine news is that over the weekend it became clear that Trump lost his bid for reelection. Although economics is traditionally not the Democrats’ strong suit, I think this means an end to the large-scale damage Trump’s loony economic policies have inflicted on the country. Because most of these losses were initiated by executive order, healing should start relatively rapidly as Biden uses similar orders to nullify Trump’s. This should be a factor in stock market action this week, but my impression is that it isn’t. The bottom line: the domestic economy should be healthier, sooner under Biden–although there won’t be much evidence of that until mid-2021.

When Asian trading of US stock futures ended very early this morning, the results were as follows:

S&P 500 +1.35%

NASDAQ +1.72%

Russell 2000 +1.21%

Dow +1.32% (as regular readers will know, I think the Dow has about as much relevance today as buggy whips and blocks of ice to use for refrigeration have in our daily life–less, actually …but it can serve as an indicator of how stocks of the past are moving. And its use identifies commentators as being totally clueless)

Anyway, the Pfizer announcement of a successful trial of a covid vaccine (90% effective in preventing the disease, with few side effects, according to the announcement) after Pacific trading closed has made those prices irrelevant. As I’m writing this at 8:15am est, the index numbers are:

S&P 500 +4.07%

NASDAQ +0.05%

Russell 2000 +7.00%

Dow +5.61%

European stock markets that I’ve checked are all up by about 5%.

This is not 100% covid, of course. Over the weekend, it became clear that Trump, his economic idiocy and his nazification of American life, have been voted out of office. Also the year-to-date performance difference between multinational growth stocks, +40%-ish, and the Russell 2000, flat, has been so extreme that it was inevitable that sooner or later the latter would have its day in the sun. All that said,

my thoughts

It’s hard to know how large or long-lasting this rally will be. So I’m mostly going to watch.

I’m most interested what economically sensitive stocks go up the most; and what high-fliers crash the hardest. If past form holds true, the best performers will be firms that Wall Street has left for dead. All the former stars will likely go down, but there might/should be a difference between names that are radically dependent on the pandemic continuing (these are the main targets for culling, I think) and plain old multinational secular growth stocks.

I also want to see if/how the pre-market view is sustained as the day progresses

At the very least today we’ll a glimpse into how our portfolios might fare in a post-covid, post-Trump world. For me, the picture is probably not going to be particularly pretty. I’ve been inching away from my all-in pro-covid portfolio for a number of months. I have a 10% position in a Russell 2000 etf, for example. But experience tells me that this won’t be anywhere near enough to prevent me from having a bad relative performance day.

That, however, is life as a portfolio manager.