Yesterday morning, my alarm went off and I rolled out of bed as usual.
I checked my phone to see where the market futures were trading.
This usually gives me a clue if there’s something big happening in the market. And it helps me think about investment ideas I can share with you later in the day.
As I expected, the market was up marginally — but nothing unusual. That’s been the pattern for the last several weekday mornings.
So I took a quick shower, poured myself some coffee and turned on the news.
And that’s when things started to go nuts!
As I’m sure you’ve seen by now, Pfizer announced positive results for its Covid vaccine, noting a 90% rate of effectiveness and no serious safety issues.
The broad stock market shot sharply higher on the news, driving futures for the Dow Jones Industrial Average up well over 1,000 points in the hours before the market opened.
It’s as if the “all clear” horn has been sounded for investors!
So what does that mean for your retirement investments?
The Market’s Unusual Reaction to the Covid Vaccine Announcement
I was intrigued to watch how different stocks responded to the Pfizer news yesterday.
For starters, we saw some giant leaps for companies that suffered the most during the crisis. Shares of airline stocks, cruise companies and amusement parks vaulted sharply higher.
This makes perfect sense because these businesses have suffered so much during the crisis. If the Covid vaccine truly is effective, it won’t take much time for people to become comfortable with traveling and being part of large crowds again.
So profits for travel and leisure companies should naturally surge.
The same can be said for restaurants, concert venues and even the endurance races that I enjoy so much.
And when these businesses ramp back up, they’re going to have to rehire laid-off workers. As those workers start earning paychecks again, unemployment will drop, consumer spending will pick up and the overall economy will grow.
No wonder stocks shot sharply higher!
Still, there were a few of my favorite stocks that didn’t handle the news as well as you may have thought.
Negative Reactions to Positive News
Despite the good news on the coronavirus front, shares of a few of our favorite income plays traded lower on the news.
Take a quick look at the charts below…
Procter & Gamble (PG) sells basic products like household cleaners and cosmetics to consumers around the world. The stock currently pays investors a competitive 2.3% dividend yield.
Home Depot (HD) is the go-to supply store for builders and homeowners alike. Shares pay investors a 2.2% yield, and the stock has done well thanks to the high demand for new homes.
Wal-Mart Stores (WMT) has stores around the world and has also made huge progress competing with Amazon’s fast online delivery business. WMT also pays a 2.2% dividend and has been a reliable investment both before and throughout the coronavirus crisis.
So what’s driving these healthy stocks lower? And what (if anything) should you do with your positions in these stocks?
Profiting From a Temporary Shift
It takes a bit of detective work to figure out why these solid stocks are trading lower. After all, a Covid vaccine isn’t going to keep people from buying toothpaste from Procter & Gamble, starting home improvement projects that benefit Home Depot, or from shopping at their local Wal-Mart.
If anything, these businesses will accelerate as the overall economy recovers.
But the market tends to overreact to big headlines. And in this case, investors decided to jump into travel and leisure stocks aggressively!
These investors had to pull money from somewhere to fund new positions in airlines, hotels and other recovery plays. And “stable” stocks like PG, HD and WMT were natural sells just so investors could shift cash into other areas of the market.
Meanwhile, the companies will continue to grow profits, dividends will still be paid to investors, and shares of blue-chip dividend stocks should soon recover.
Ironically, that gives us a great opportunity to capitalize on the short-term pullback by purchasing shares at a discount.
So if you have some extra cash in your account right now, I’d suggest taking a new position — or adding to an existing position — in some of these solid companies.
You may want to take your time buying the shares. Because the shift away from stable companies and into more speculative recovery plays may take more than just one day.
But over time, these stable companies will continue to grow and pay you dividends. And the cheaper you’re able to buy shares, the more income you’ll receive for every dollar invested.