Transcript:
Hello, everybody, and welcome to Tuesday, the S&P 500 was up .33% today, but the big news today was about the Johnson and Johnson vaccine that was temporarily halted. They’ve issued about 6.8 million doses. And they found six cases of this rare blood clot disorder. And so they, you know, use an abundance of caution to halt this, but I’d like to do is talk about, you know, what impact that might have on the markets, both in the short and the long term as far as that goes. So I’ve created a little demonstration here a little kind of a PowerPoint piece real quickly, just to show you, you know, so first of all, everything starts off with the virus, understanding what’s happening with the virus is helping you to understand what’s happening with the markets. And so if the, if the virus either goes up, like it has been going up, specifically in certain areas dealing with the UK virus, so the B 117, it spreads very quickly, and what have you, so that has been pushing some of the case counts up. We’ve seen that in Europe and such too, or you’d see kind of pressure, because the vaccines having trouble, which is exactly what we saw today with Johnson and Johnson. So what happens then, so if the virus gets worse, so the vaccine delivery systems get worse. First thing you got to look at is inflation. How does that impact inflation? Well, it actually takes inflation pressure down. Because if things are still slow, and they’re not reopening as fast, you’re not going to see as much inflation as far as that goes.
And and that would affect bond yields, which would also come down. And so that’s an important component for the market. Because what happens here, if we take the market and divided into two pieces, growth stocks and value stocks, you end up with this situation where you know, they’re going to be affected differently based on what happens. So growth stocks would go up in this environment, because when inflation falls bond yields fall and grow, stocks do better and a lower bond yield environment. And that’s what we saw last year. Certainly, they also, of course, have a lot of the stocks in them that did well last year when things were shut down. And that what this arrow is showing is the possibility of continued shutdown or things not opening as quickly. And in value stocks generally don’t do as well, again, because growth stocks are doing well, there’s only so much money that’s out there. And so it kind of gets sucked over onto the growth stock side, but also, these Epicenter stocks that were you know, need the vaccine to be working and the virus count to be going down to really, really run.
You know, obviously, when Johnson Johnson’s taken off the tables that we saw that come down today, just to show you the other side, when the virus is under control, or the vaccines coming out at a really good rate, you know, those 4.7 million people vaccinated, you know, yesterday, so, and that was 2 million not that long ago. So we’re really ramping up, you know, how many doses are going out every day, as that as the virus starts to get under control, and we start to see the case counts drop, and the vaccine counts go up, inflation could get more more pressure on inflation, because the reopening comes quicker, which push bond yields up, which makes growth stocks go down. And then of course, value stocks are the place that could go up here. And so that that’s, that’s the scenario. So you really kind of have to pick one or the other or both. So if you pick both, you’re looking at the broad market. Or you could be in just growth or just value or what have you.
So right now we have most of our model portfolio on this value side. And the reason is, because number one, if you had to pick a direction over the next six to 18 months, do I think the virus is going to be better or worse over the next six to 18 months, I think it’s going to be better. And so that would really, you know, look at this, you know, movement here as the predominant one. And of course, in that scenario, value stocks in the Epicenter stocks are going to do quite well. And so the real issue is that if you have lots of growth stocks, they could struggle, and really underperformed the market in this environment. And we’ve seen that we saw that yesterday when the expectations were for higher inflation and what have you, and higher yields yesterday. And so the other thing is, if you own you know, the broad market, both growth and value, growth makes up a big chunk of the broad market, because the broad market is generally market cap weighted, and most of the big companies like the Apple’s, and Facebook’s and Amazon’s, and Google’s, and such are all in this category of large growth stocks.
So that’s, that’s what I’d be cautious of there. I think there’s not a lot of places to go until this recovery is well underway. And then, you know, hopefully, we’ve made some nice profits here out of these value stocks as these companies reopen. And then we can get more into a broad based you know, investment concept. And I think that is you know, the key, but right now, I don’t really want to go there because I’m very cautious about what’s going to happen here in this growth stock area. Because I have a pretty big belief that this virus is coming under control. You know, as humans, we get better and better and better at doing things and, you know, getting this, you know, vaccine out. So the Johnson and Johnson thing, all of the estimates are that we would have, you know, end of May more vaccine, just using the Pfizer and Moderna, we’d have more vaccine than we have people that want to take it by the end of May. And the Johnson and Johnson was only going to save about a week off of that. So not a big difference, this is not going to make a difference. There’s some potential impact that Johnson Johnson might have in the emerging market arena, because it was one of the targets for that particular vaccine. And also it was just temporarily halted. So, you know, six cases out of 6.8 million, it’s important, but they may reopen that and get that going, too. So really, I don’t see the Johnson and Johnson situation as being that impactful.
Other market did react pretty strongly to this and and really kind of took it out on the on the value stocks. You can see that that even though the S&P 500 was up today, the Dow is down, which has a lot more of the value stocks. I think that’s an overreaction. Again, if you look 6 to 18 months from now, you know, I think the virus is more and more under control. And I think the reopening is happening at a much, much faster rate. And people expect this is one of the most obvious trading situations I have seen, just in the sense that, you know, this reopening is going to happen and every time it flips the other way, based on some news, like Johnson and Johnson, really, I mean, it’s an opportunity to actually buy in my opinion, some of those value stocks, they get knocked down because they’re they’re going to run here, as this reopening really does happen in my opinion. So you don’t have to wait and see what happens. But really fascinating today, you know, to see how this stuff plays out. Hopefully that visual kind of get you a good idea of you know what happens with the markets. And let’s take a look at what happens tomorrow. Thank you very much.