Equity investors were bullish going into Monday morning and positive vaccine news from Pfizer and BioNTech was all they needed to sprint after recovery stocks and send U.S. markets to record highs. The Dow Jones Industrial Average traded 5.7% higher, breaking an all-time high before losing some of those gains to close the session nearly 3% higher on the day. The S&P 500 also smashed a record, popping 2.7%, while the small-cap Russell 2000 Index gained 5.7%. The Nasdaq traded lower as the stay-at-home stocks sold off along with the mega-caps.

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Since last Wednesday, U.S. and global equity markets have been on an absolute tear as investors have embraced what they think the next four years will look like under a Biden administration with a Republican controlled Senate. Neither are sure things until the voters say so and the electoral college certifies it, but sentiment is settling on that outcome.

share price chart
Chart courtesy FinViz.

Investors see stimulus on the near horizon, limited tax increases, and a lot of money going into healthcare and green energy. This morning's vaccine news, while also not a sure thing, is the closest thing to the green light that a lot of investors have been waiting for. Money flew into reopening trade, sending sectors from airlines and cruise ships to oil and energy stocks on the express elevator to levels they have not seen in months.

Steady inflows to bonds
Chart courtesy SentimenTrader.

Money Finally Flows from Bonds to Stocks

Big investors finally worked up the courage to move money out of bonds last week as the markets charged higher as the election results became clearer. For only the second week in the past 30 weeks, money moved out of bond funds and into equity funds, according to Lipper. 

Stocks, on the other hand, have seen almost nothing but outflows over the same time period. It may seem hard to believe given that markets have charged higher since April. That's mostly due to a few large market cap stocks that have pushed the market-weighted indexes like the S&P 500 and Nasdaq higher.

Retail investors (you and me) have been active market participants in 2020, to be sure. Some estimates say 20% of the trading during the market run-up this summer was driven by retail investors. Try as we might, though, we don't have the power to move the indexes like the big players do.

Stay-at-home stock price chart

Full Rotation

The rotation out of the stay-at-home stocks into the recovery-related industries over the past three days has been stunning. Today was an extreme example of that as oil stocks, cruise stocks, and airline stocks soared higher, while 2020 favorites like Zoom (ZM) and Peloton (PTON) traded lower. The buying and selling in these sectors was extreme today, like it always is based on virus or vaccine news, but the shift is noteworthy.

How are You Feeling About All This?

You, dear readers, continue to prove to be level-headed and reasonable about how recent events like the election will impact your portfolios. A majority of you think U.S. equities will rise anywhere from 10% to 25% higher over the next 12 months, but nearly 70% of you say you will not increase your investment allocations even though you think that. You believe equities will produce the best returns in the next year — better than gold or even Bitcoin — but you are keeping your cool and staying the course.

Bravo.