Varney: Democrats show they are the party of elites by rejecting coronavirus relief bill

The party of 'working people' has just rejected more government help for working people

By Stuart Varney | FOXBusiness

 

The deluge of selling that nearly pushed the S&P 500 into a correction may be over as investors look ahead to a further reopening of the U.S. economy and the distribution of a COVID-19 vaccine, according to strategists at Goldman Sachs Group.

The benchmark S&P 500 has found its footing after plunging 7.45% in the three trading sessions following its Sept. 2 record-high close of 3580.84, amid investor concerns mega-cap technology stocks were becoming too pricy as valuations stretched into the 99.6th percentile, just below those seen at the height of the 2000-2001 dot-com bubble. A correction is marked by a 10% drop from a recent peak.

“Despite the sharp sell-off in the past week, we remain optimistic about the path of the US equity market in the coming months,” wrote a Goldman Sachs team led by David Kostin, chief U.S. equity strategist at Goldman Sachs. “The Superforecaster probability of a mass-distributed vaccine by 1Q 2021 has surged to nearly 70% and economic data show a continuing recovery.”

Optimism surrounding a potential vaccine provides further support to a U.S. economy that continues to recover following its deepest contraction in the post-World War II era.

Goldman Sachs economists said last week that a faster-than-expected snapback in consumer spending will allow the U.S. economy to grow at a 35% pace in the third quarter, up from its previous forecast of 30% growth. They also pinned their forecast on the likelihood a vaccine is succesfully developed.

The Wall Street consensus calls for the economy to expand at a 21% annualized rate after contracting by 31.7% in the three months through June amid stay-at-home-orders aimed at slowing the spread of COVID-19.

Investors received welcome news on the vaccine front over this past weekend when Pfizer Inc. asked the Food and Drug Administration to expand its late-stage trial to 44,000 participants, up from 30,000.

Pfizer CEO Albert Bourla told CBS’ “Face the Nation” on Sunday that a “likely scenario” is that the company’s COVID-19 vaccine will be distributed by the end of the year so long that it is proven to be safe and effective.

Johnson & Johnson and Moderna Inc. have experimental vaccines in late-stage trials. AstraZeneca plc and Oxford University announced on Saturday their late-stage trial days had restarted days after it was put on hold due to a participant falling ill.

Goldman strategists say a vaccine would be a bullish catalyst for earnings estimates in cyclical sectors, or those most sensitive to a rebounding economy, helping propel the S&P 500 up another 8% from Friday’s close to 3,600 by year-end.

They say the five tech stocks, Alphabet Inc., Amazon Inc., Apple Inc., Facebook Inc. and Microsoft Corp., that make up 23% of the S&P 500 are “appropriate” in their weighting due to their growth prospects and strong balance sheets, but are negatively correlated with vaccine probabilities, meaning they could underperform in the event of a discovery.

The overhang of the Nov. 3 election remains the biggest source of near-term stock market uncertainty.

“Options are pricing a 3% S&P 500 move on November 4 as well as the likelihood of an extended period of uncertainty as mail-in votes are tallied,” the Goldman strategists wrote.