The sweet sound of 18-wheelers rolling out of Pfizer's Kalamazoo, Mich. production plant with tens of thousands of doses of BNT162B2 — the scientific name of the drug giant's COVID-19 vaccine — was not enough to drown out the fears of more economic lockdowns in Europe and the U.S. The DJIA and the S&P 500 gave up early gains and closed near their lowest levels of the day. Investors retreated to tech and communication stocks, sending the Nasdaq higher. The Cboe Volatility Index (VIX) made a surprising return, jumping 6% on the day as the DJIA made a 350-point swing.

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New York City announced that indoor dining would be prohibited for the next several weeks, and Germany announced that strict new lockdown measures will come into effect Wednesday and extend through Christmas to control the resurgence of the virus. 

Inside the stock market, pharmaceutical and vaccine-related companies led the gains, while oil and energy stocks led the declines. Energy stocks have had a hot month as investors anticipated the vaccine rollout that is now underway. But every time the realities of the resurgence of the virus and economic restrictions set in, investors run from the sector.

price chart

Japan is Rising

We've written about the recent outperformance of emerging markets lately, but one of the late 20th century's most exciting and ultimately disappointing stock markets has been rising. 

It has been a long and slow rise, but Japan's Nikkei 225 has hit 29-year highs recovering from what some consider the mother of all market bubbles in the 1980s. As JC Parets from All Star Charts points out, the Nikkei could still rise another 40% and not hit the all-time highs it made at its peak in 1989. 

And it's not just that the Nikkei index is making multi-decade highs, Japanese stocks like Toyota and Sony are also making multi-year highs. 

Japan 1989 bubble
Chart courtesy AllStarCharts.com.

SPAC it to Me

While IPOs stole all the thunder last week, 2020 has really been the year of the special purpose acquisition company (SPAC). These 'blank-check' companies, as some call them, have been very busy in the cannabis, green technology, and sports-betting arenas in 2020, scooping up companies like DraftKings and Nikola. The common theme there is high-growth potential, big losses, and buzzy trends.

SPACs have raised a record $20 billion in 2020 — a fivefold increase from last year’s record high that was itself up 44% from 2018. According to Goldman Sachs , the 206 SPAC IPOs completed this year account for 52% of the record $124 billion of total U.S. IPO capital raised year-to-date across 356 transactions. 

But Why so Hot in 2020?

A few reasons: There's about 20 million new retail investors and traders who opened accounts for the first time this year. Many of them like shiny new things, and SPACs, while not new on the scene, have made quite a reentrance.

In addition, with fed funds rates at or close to zero, any investment vehicle that has the potential for hyper-growth is interesting for investors. It's the same reason the IPO market has been so hot this year. Ultra-low yields push investors towards risk — and SPACs have plenty of it — but have also delivered some healthy alpha in 2020.

Valuation Reality Stings New IPOs

With the hype of their IPOs behind them, Airbnb (ABNB) and DoorDash (DASH) now get to enjoy the realities of a being a publicly traded company. That includes Buy, Sell, or Hold ratings from equity analysts. Today, a pair of Wall Street analysts warned that the first-day trading surges last week for these two stocks left their market valuations at precarious levels. (Equity analysts are great at stating the obvious sometimes.)

Research firms Gordon Haskett and D.A. Davidson lowered their ratings for the two unicorns, saying their valuations are "more than stretched" and the current price "leaves little room for performance hiccups over the next year." Both stocks fell more than 10% today and there may be more air that needs to come out before the selling abates.

ABNB, DASH stock price

Hey, Big Traders

Online brokers have never had a year like 2020. The work-from-home economy, the lack of live sports, and the fastest bull and bear markets in history brought a flurry of new investors and traders into the market. We've been talking about it all year, but as we near the end of 2020 and we look at the final scorecard, we see just how many newbies have jumped in the pool.

According to Bloomberg Intelligence, retail trading, which now comprises 20% of U.S. stock orders, increased by 5 percentage points in the $42 trillion stock market in just one year. It smashed through the highs it set during the dot-com boom of the late 1990s — and we know how that ended.

The technology has never been better and easier to use — and the markets have never been easier to access via ETFs, fractional shares, and zero-commission trading. But the markets haven't changed — except for the fact that there are fewer public companies than 20 years ago and very smart and powerful algorithms moving trillions of dollars around the world at the speed of a click.

Be careful out there.

Retail trading growth has exploded in 2020
Chart courtesy Bianco Research.