In markets, investors are always accounting for the path vs the destination. For example, you may believe a stock is undervalued and should double to be appropriately valued. That is the destination.

However, you may not immediately go out and buy the stock, because you think it could go down in the near-term. This is the path.

Vaccine News

While this dynamic is persisting under the surface at all times, it's become even more ostensible in recent weeks on the vaccine news and rising case counts. Based on the current trajectory of the coronavirus - its nearly, exponential growth and the continued resistance to masks and social distancing, winter weather, holiday travel, and gatherings - the situation Is going to get worse. Already, it's showing up in high-frequency economic data which shows that spending and activity are decreasing in hard-hit areas.

At the same time, we have received very positive vaccine news. Pfizer (PFE  ) and Moderna (MRNA  ) both reported more than a 90% success rate, This is undoubtedly good for humanity and the economy. In essence, about a couple of weeks ago, the consensus was that the world would return to normal sometime in 2022. Now, it's looking like the world could return to normal sometime in 2021.

Growth to Value

The news has also triggered a rotation from growth to value. The WFH economy and low-growth, COVID world were a boon for growth stocks. They saw their revenues accelerate, pulling forward years of growth. Further, the Federal Reserve policy led to multiple expansions for these stocks as well. Sectors like digital payments and eCommerce will continue to grow regardless of the macroeconomy.

In contrast, value stocks are more connected to economic growth, while certain industries like hotels, casinos, and airlines are connected to the public health situation. A coronavirus vaccine means that the world is going to return to normal quicker than anticipated. Growth will bounce back. This is benefitting value sectors like financials and energy.

However, the biggest winners are the sectors that will see a "return to normal" like travel. These were doing well before COVID and there will likely be massive pent-up demand for people to travel, visit family, and take vacations once the vaccine hits critical mass. Another area that will benefit is retail REITs like Simon Property Group (SPG  ).

There is also a tremendous disconnect that could also lead to more upside for these stocks. For example, all the U.S. airline stocks, cumulatively, are worth $120 billion. In contrast, several tech stocks are worth more than that. Same with casinos and hotels. Small rotations from tech to these sectors could lead to big gains for travel stocks.


In the short-term, investors should look at travel and retail REITs as these will have the most aggressive bounces. In the long-term, investors should consider financials and energy. These have the most upside given that they have the most attractive valuations.