Do you remember the 2010 "Flash Crash"?
In just 36 minutes, the stock market fell 10%. Most of that selling started thanks to flawed computer algorithms. When the market started to fall, it triggered computer-automated sell orders – exacerbating the sell-off.
Programmed computers wait to scalp every penny they can for the potential for quick directional changes. And, especially since the May 2010 crash, there are meant to be safety nets in place to stop crashes like this from happening again.
But it's a reminder that humans are still behind those computers. And since humans are full of emotions, we've even trained machines to mimic our panic…
For proof, just look at what has been going on the past few days.
As you know by now, drugmaker Pfizer (PFE) reported blockbuster vaccine news on Monday. Pfizer and its German biotech partner BioNTech (BNTX) said that the companies' COVID-19 vaccine candidate was 90% effective in preventing coronavirus cases in clinical trials. It also showed no serious side effects.
Investors have been waiting months for this news. It has allowed them to breathe a sigh of relief. As COVID-19 cases have soared lately, many investors were scared that states would have to shut down parts of our economy again. An effective vaccine helps alleviate those concerns.
The Dow Jones Industrial Average shot up on the news. It closed nearly 3% higher on Monday and 1% higher on Tuesday. The Dow is made up of companies that rely on a robust economy like 3M (MMM), Caterpillar (CAT), and JPMorgan Chase (JPM).
Meanwhile, the tech-heavy Nasdaq Composite Index fell. It closed 1.5% lower on Monday and 1.4% lower on Tuesday.
Investors rotated out of tech because with a vaccine, the thought is that things would just magically return back to normal. The "work from home" trend would soon end. And folks would soon be back in shopping centers and restaurants.
Amazon (AMZN), for example, fell 5% on Monday and 3.5% yesterday.
Even with an effective vaccine, will people stop or even significantly slow down their spending on Amazon?
Well, plenty of investors seem to think so.
It seems like an overreaction to me though. Again, the market is full of emotions. Sometimes emotions get the best of us.
Think about it this way...
Even with a vaccine, how long will it take for social distancing and other precautionary behaviors to end? Most estimates say that the vaccine won't be widely available until next year, but more realistically early 2022.
As I talked about last week, distribution is the real problem. It's going to take a while before enough of the vaccine is out for public use.
Plus, you have to convince everyone to actually get the vaccine. According to an October survey by CNN, only 51% of respondents said they would try the vaccine. The other 45% said they would not try and 4% had no opinion.
With the news on Monday, maybe more people will be willing to try it... But it's still not going to be anywhere close to the majority. People will still be skeptical.
Masks will be here to stay for many months... so will social distancing... and so will precautionary measures from local governments and companies.
So again, does this vaccine change your outlook for a company like Amazon?
Over the past few months, people have come to rely on Amazon for just about everything. From groceries with its Whole Foods stores to everyday necessities like toothpaste and toilet paper to new TVs.
A lot of folks are now accustomed to online ordering. They're not going to rush into a crowded store anytime soon when they can just order what they need with the click of a button. Many of these customer gains are going to be "sticky."
I'd caution everyone who thinks things will return to normal overnight. The vaccine news is obviously great for the outlook on our economy, but folks have gotten used to coronavirus life. Things won't change immediately. We still have awhile to wait for a return to any sort of "normal."
That's why my colleague Dave Lashmet says his research shows a small biotech firm is still the best COVID-related investment in the market for the foreseeable future.
Because of the technology it could have on the market in just a matter of weeks, it could have a far greater immediate impact on the pandemic than any vaccine.
But the time for you to get in on this opportunity before it starts REALLY moving is quickly running out.
What We're Reading...
- Biden congratulates Pfizer on its COVID-19 vaccine news but warns widespread availability is 'many more months' away.
- The share of Americans interested in getting Covid-19 vaccine as soon as possible is dropping.
- Something different: One in five COVID-19 patients develop mental illness within 90 days.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research Team
November 11, 2020