In early November, here in “The Bear Growls” we discussed the phenomena of Information Shock and its effect & application to markets & stocks. Traders' expectations help drive markets and surprises occur all the time. But in this situation (COVID-19 vaccine), it was a result of new information, namely that in the real trial with real people, clinicians and scientists were seeing spectacular results, a case of a vaccine working earlier than the experts and markets were expecting thus taking the market by surprise. The Information shock to the market was due to the vaccine’s efficacy as well as its timing. Both factors turned psychology positive and the drugs now look ready for imminent delivery. As we opined in this space just 4 weeks ago, although many in the market were of the belief that a vaccine would be produced, the results and timing of the positive trial was an example of new information entering and shocking the market. The new information was a shock and changed the investment paradigm of the day. We noted that there are 3 stages in this phenomenon, 1/The original information shock catching many market participants off guard, 2/Absorption & Acceptance (digestion) of the new information, and 3/The application of the new information. What we specifically noted was what happens to stocks when new information enters a market: 1/there is an initial directional thrust, 2/then a fade as the new information is absorbed, then 3/ the market usually re-ignites in the direction of the original thrust. What happens during a bullish information shock event is the new information creates a rally in the stocks that are most affected by the new investment thesis. This is known as sector rotation, where the market's edge (leading and lagging stocks) reacts to the new investment paradigm. During the rotation process, the investment expectations, and reasons for owning a stock/sector are Re-evaluated, and if the old premise or investment thesis is found lacking- then the rotation will continue. In a positive information shock situation, as occurred in early November, new leaders arise, but overall, the effect is positive and an overall higher market. Since that day on November 9th, (the positive Pfizer vaccine results), the stock market rally has produced one of the best Novembers and among the best 1 month performances in market history. As the market embraced the new information, rotation developed, and the out of favor sectors (pandemic losers) such as oil & gas, travel & leisure outperformed and led the market much higher. In addition, a great many beneficiaries of the pandemic lockdown economy have underperformed the averages, but most pandemic winners enjoyed a heck of a ride and are much higher on the year.

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