In this episode of MarketFoolery, Chris Hill chats with Motley Fool analyst Bill Barker about the latest headlines from Wall Street. They talk about the importance of AstraZeneca‘s (NASDAQ:AZN) vaccine for world health. They also discuss the law of large numbers and FAANG stocks, predictions about oil prices and air travel for 2021, and much more.
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This video was recorded on Dec. 30, 2020.
Chris Hill: It’s Wednesday, Dec. 30. Welcome to MarketFoolery. I’m Chris Hill. With me today, Mr. Bill Barker. Happy almost end of 2020!
Bill Barker: Thank you, and to you as well. How is the end of 2020 going for you? [laughs] Tune in tomorrow.
Hill: [laughs] Yeah, tune in tomorrow. We’re actually going to spend a couple of minutes looking back on what an unusual year it’s been for the market, and we’re also going to look ahead to 2021, because I want to get your thoughts on a couple of predictions that I’m seeing out there in the financial media.
But we should start with the news of the day, which is that Britain becomes the first country to approve AstraZeneca’s vaccine for COVID-19. Here in the U.S., the FDA still has to review large-scale trials. But this is good news for the people in Britain, although you wouldn’t know it from the movement of AstraZeneca’s stock, because it’s basically flat today.
Barker: Yeah, and flat for the year. Of course, at that this point the marginal news on a third vaccine isn’t what it was for either of the first two, although, at the end of the day, this may be the most important one in terms of vaccinating people, because it doesn’t have the same cold-storage requirements that the Pfizer and Moderna vaccines have. It can be distributed throughout parts of the world that really aren’t going to be able to work with those vaccines. And it’s also because it’s AstraZeneca; it’s more prepared to crank out a whole lot of vaccines in a relatively fast manner as compared to the more elaborate procedures that are needed for these cold storage vaccines.
So, I think that in terms of world health, it’s very, very, very important, and don’t let the stock price movement, either today or for the year, when it’s also been flat, mislead you about that.
Hill: Although… and you’re right about that, but it is in some way striking that, you know, if you go back six, eight months, people would be forgiven for thinking, like, well, whoever comes up with a vaccine, that they are just going to be printing money off that?
Barker: Perhaps. Well, I think AstraZeneca is out there on the fact that they’ll be disturbing this at least to developing nations on a nonprofit basis. So, yeah, I think the assumptions of how much money anybody is going to make from this vaccine are probably mostly, you know, uninformed and guesses, and people thinking that that surely is going to be like a big profit center. I think in Moderna’s case, in particular, more importantly, it is the technology, which is revolutionary, and the possibilities for future vaccines and treatments off of the mRNA, which is a bigger chunk of what you would want to invest in than merely this vaccine. So, I think mRNA — and I don’t know enough about the technology to go into it at lengths, but I think that has great promise for a lot of treatments. And that AstraZeneca, and hopefully Johnson & Johnson, are more of the traditional technologies, but they’re all part of a completely nutritious breakfast.
Hill: [laughs] So, you and I were talking about this earlier today. There’s still some trading left to be done in 2020, but barring something large in terms of price movements, right now the S&P 500 is on track to finish up for the year somewhere in the neighborhood of 14% to 15%. We’ve seen years like that this century, but what makes [laughs] this particular year of finishing up 14%, 15% remarkable in my mind is the fact that from late February to late March, the S&P 500 fell 34%. And, like, we’ve seen good years in the market, we’ve seen bad years in the market. I don’t ever remember a year like this.
Barker: Yeah, well, it is going to be a year that if you look at it briefly in a big chart, it’s going to look kind of boring, at least on the end-of-the-year metric. I’m looking at one right now, and it just doesn’t stand out. You know, 14%, 15%, that’s a good year for the market. A long-term average for the market is somewhere around 10% or 11%; that’s because there’s a lot of inflation in previous decades, the sort of real returns, inflation adjusted, is 6.5% to 7% typically. Now, this year’s 14%, 15% is not carrying much inflation, so it is a pretty good year on the whole, but not nothing remarkable; it really is more the dive it took and the rebound back. And both that and the distribution of where the returns actually are, because a lot of the value investors are not seeing anywhere close to these 14%, 15% returns for their year-to-date portfolios.
Hill: Yeah, it is a pretty bifurcated year [laughs] in terms of certain stocks being up several hundred percent, and others either, you know, like AstraZeneca, flat or in the case of — you know, Jason Moser and I talked about this the other day, the big banks, you know, just down for the year.
Barker: Yeah, a lot of major industries, oil, of course, down for the year. You’ve got ExxonMobil, once the largest company by market cap, down around to $170 billion, which is still big, but there are a lot of companies in that range that are not anywhere close to ever having been the largest company in the world. So, hotels, real estate, banks, oil, a lot of things, a lot of things down for the year. And then you’ve got, well, the tech stocks, the FAANG stocks, the SaaS companies having a completely different experience from 2020.
Hill: Yeah, the law of large numbers is kind of taking a beating this year, [laughs] when you look at what companies like Microsoft have done in terms of their returns.
Barker: Microsoft, Apple, Amazon, yeah. The law of large numbers is going to be taken in and relegislated, I think, because it’s breaking that law of these companies. And it feels like the law of large numbers [laughs] is still a law, but it really is worth re-examining whether that’s truly the case anymore or whether these are the companies that benefit from a 21st century economy.
Hill: You mentioned oil a moment ago, and that’s actually one of the predictions that I’ve started to see for 2021, as people, including people here at The Motley Fool, make predictions about the year ahead, because among other things, it’s fun to do. But I am curious. I want to get your reaction to two predictions I’m seeing, and one is that the price of oil is going higher, that it is absolutely going to have a much better year; there’s going to be more robust demand for oil. Is that a prediction you look at and think, yeah, that makes sense to me?
Barker: It depends on how much of a tangent you want me to go on that one, regarding my history of oil predictions.
Hill: Well, answer the question, then we can go to the tangent. [laughs]
Barker: Yeah, sure, why not? I mean, I think it’s cyclical. You can make any prediction you want about where a highly cyclical thing is going to be at a specific point in time. Now, an economist will tell you not to do that, that you can either predict the direction or the level of something or you can predict the time of something, but you’d never do both. So, is oil going to be $55 in the second half of 2021? Sure, why not? It might be; might not be. You don’t know what war is going to start or not start. Hopefully, you don’t know whether the number of people that need to take a vaccine are going to have taken it to the point where herd immunity is a scientific reality rather than, you know, a punchline.
So, it’s a prediction, which is based on, you know, a rational set of expectations, but it’s a cyclical one. And something weird is going to happen in between now and then that probably pushes the oil $10 or $15 more, one way or the other, than what you expect it to be at a specific moment in time.
Hill: And I don’t know if this is still the case, but there was a point in time where you were considered something of an expert when it came to the oil industry? Isn’t that true?
Barker: That’s true in my memory, sure, I do think so. The only time that I’m ever referred to as an expert in life is when I show up on TV, and then they have to, like, we’ve got this guy, and to make sure that you believe that his words have some value, we’ll refer to him as an expert. But I can remember being on MSNBC once, I believe it was MSNBC, and during the pre-interview about what we’re going to talk about, they asked, you know, what are your predictions on what the price of oil is going to be later this summer. And I said, I can make something up, but that I think the question is kind of worthless. And I thought that I had indicated that I should not be asked that question. And I did not actually convey that in the way [laughs] that I thought I had to do. Because I was asked, do you think gas could be 25 cents more expensive later this summer? And as I recall, my answer was, sure, why not, gas moves all the time, you know. I don’t know how to predict where it’s going to be.
But to make a long story long, I ended up, later that day, walking out of the green room with some notes that an FBI agent had left by mistake among my papers, and I was later called to ask if I had somehow mistakenly taken these secret documents, which I had. So, that’s a story for another day.
Hill: It is a story for another day. Although, is it safe to assume that you returned them promptly to the nice people at the FBI?
Barker: Yeah. Well, I returned them to the studio, [laughs] where I think the very, very scared agent — I don’t think that actually the papers had anything truly interesting in them, but, you know, you got to maintain those top-secret files in the right manner. [laughs] And so, it’s too bad that he left them in a pile of papers, it got shuffled around with the papers that I was using to prepare for my time. So, yeah, I think he was very glad that he recovered them. And probably, if he was intelligent, didn’t mention it to anybody higher up the chain.
Hill: So, you alluded to the second prediction that I’m starting to see when you mentioned herd immunity and enough people taking the vaccine here in the United States, and that is a prediction that, in the second half of 2021, America is going to open up for real. And because of that, hotel bookings are going to soar and the price of airline tickets are going to soar.
Barker: I think those are rational expectations, and I think that that goes to both the predictors mindset of probably what he or she expects to be doing himself or herself. And you and I have probably spent some time at home talking with our families about what we might do in the second half of 2021 once various people are out of whatever passes for school these days. And you know, the opportunity that we hope is there. And probably a lot of people are making those bookings right now before prices jump. I’ve heard expectations that, you know, Christmas — those that travel for Christmas and stay in nice places that week and the week after, are booking right now because of a certainty that everybody is going to be competing for those reservations well before this time next year.
Hill: I really hope they’re right. I mean, much more so than the price of oil. [laughs] I hope those predictions are right, because it will mean a return to, if not complete normalcy, at least a much more normal existence than we’ve been living in 2020.
Barker: Yeah. I think most people would take the “Can I travel safely, even if the price of airline tickets is double what it is right now,” I think a whole lot of people would take that. And I think I’m one of them. It’s not going to happen any time before, I think, the middle of next year for a big family vacation somewhere.
Hill: Bill Barker, always good talking to you. Happy New Year!
Barker: Happy New Year to you!
Hill: As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don’t buy or sell stocks based solely on what you hear.
That’s going to do it for this edition of MarketFoolery. The show is mixed by Dan Boyd. I’m Chris Hill. Thanks for listening. We’ll see you tomorrow.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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