When Pfizer announced a 90% effective vaccine for the Coronavirus on Monday November 9, 2020, the US stock market closed one chapter and opened another.  The new chapter ushers in extreme volatility for the NASDAQ 100 and S&P 500 indices.  The EXTREME volatility, which should have occurred after the 35% decline from the February peak to the March 2020 low, will soon begin.  The shares of all five of the mega cap tech stocks including Apple, Amazon, Facebook, Google and Facebook and other big gainer tech stocks including Zoom Video and Peleton, etc., should be sold as soon as possible.         

The chart below depicts the 2020 February highs and the March lows for the Dow Jones 30, S&P 500 and NASDAQ 100. The chart also depicts the NASDAQ 100 and the S&P 500 exceeding their first quarter 2020 highs on June 5, 2020 and August 24, 2020, respectively.       

The two indices reaching new highs after economists had projected that US GDP would experience its steepest decline since the 1930s surprised all investors.  After the smoke cleared the rationale for the indices quickly reaching new highs became clear.  Both indices had and continue to have a high percentage of tech and especially stay at home economy members who benefitted from the spreading of the Coronavirus.  The chart below depicts that the shares of Zoom Video, the single biggest beneficiary of the virus zoomed from $68.00 at the beginning of 2020 to as high as $568.00, an eightfold gain.

The Coronavirus, being the crash catalyst, eliminated the post-crash events and volatility which normally occurs after a significant market crash.  Its because the virus accelerated the transformation of the economy from brick and mortar to digital.  This resulted in tech stocks steadily climbing to newer all-time highs while brick and mortar stocks steadily declined.    

Most significantly, the memberships of the S&P 500 and the NASDAQ 100, included the five mega cap tech stocks in the chart below.  The five outperformed the brick and mortar Dow Jones 30 Industrials composite index as depicted in the chart below.   

The PE Ratios for the five in the table below, which in aggregate have accounted for as much as 28% of the S&P 500’s market cap since March 2020, increased by 17% to 66% when compared to their 2019 high PE Ratios.

With one or more vaccines now on the horizon the stay-at-home-stocks chapter for the stock market has officially ended.  The psychology has shifted to the new tech-stocks-to-be-revalued chapter.  The poster child for this happening is Zoom Video.  The chart below depicts the 16% decline for Zoom Video shares on the morning of Pfizer’s vaccine announcement.

The inability of the five mega cap tech stocks to continue their steady climbs will result in the major indices being much less stable.  The volatility which did not occur for the major market indices after the February crash is inevitable.   The PE multiples for the five mega cap tech stocks will contract back to their historic norms.  Shares of all five of the mega cap tech companies should be sold as soon as possible.  Shares of stay at home stock beneficiaries including Zoom Video and Peleton, etc., should also be sold.   

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Click below to watch a video about the BBT’s performance metrics including track records and risk tolerance levels.  For the 12 months ended August 31, 2020, the BBT produced a gain of 97.7% vs. a gain of 18.8% for the S&P 500.

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