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Rebound and Rotation | Flow Traders Investment Competition | Week 2

16/11/2020

The S&P 500 closed at a new record high and global equities posted a second week of gains following news of progress in developing a COVID-19 vaccine. Stocks surged on Monday after Pfizer and BioNTech announced that their vaccine had 90% effectiveness in their large study, triggering a wave of hope and optimism that a medical solution will address the health crisis and accelerate the economic recovery.  

 

Most of the other major benchmarks added to the previous week’s sharp gains, bolstered by positive vaccine news. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 5.13% higher. Major European indexes also posted strong gains: Germany’s DAX Index climbed 4.78%, France’s CAC 40 surged 7.45%, and Italy’s FTSE MIB added 6.21%. The UK’s FTSE 100 Index rose 6.88%. The Nikkei 225 Stock Average advanced 4.4%.

 

In addition, the vaccine optimism also prompted a market rotation: a rally into cyclical shares, especially those of travel and leisure-oriented firms. In addition, energy stocks also rallied as oil prices rebounded, and bank shares benefited from an initial sharp rise in longer-term bond yields, which augurs well for higher lending margins. On the other hand, investors sold out of “stay-at-home” stocks, such as Amazon.com and Netflix.

 

The economic calendar last week has shown a mixed picture. Weekly jobless claims fell more than expected and reached a new pandemic low (709000), and continuing claims fell below 7 million for the first time since March. Small business sentiment surprised investors by remaining steady at pandemic highs. However the University of Michigan’s measure of consumer sentiment in November fell to a three-month low. Consumer price data releases showed that core inflation dropped back a bit last month, with prices rising at a subdued 1.6%.The UK economy grew by a slower-than-expected 1.1% in September, month-over-month data showed. Gross domestic product (GDP) rebounded 15.5% in the third quarter but failed to fully offset the almost 20% slump from the second quarter. 

 

Turning to the investment competition, the rankings will be determined by our B&R M^2 formula from now on. Hermanszoon Capital, with a formidable M^2 of 7,43%, is leading the crowd this week, followed by Metrics Fund and Porto d’Oro. In terms of absolute weekly returns, Capital Phi Investments  are up by 7.81%. Ranking-wise, they are also the largest riser this week shifting 40 positions upwards. On the other side of the spectrum, Primus and Floryn are going down the drain by -2.26% M^2, and -2.46% respectively. 

 

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