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Where’s the stock market going next? Look at the 1960s for an answer, says a Fidelity strategist

The big question overhanging markets is whether the rollout of coronavirus vaccines will trigger enough of a reaction to propel the economy and spark inflation, and therefore give a boost to out-of-favor industries such as financials and energy.

The recent flows into the market suggest many traders think it will — according to Bank of America, a record $115 billion came into stocks over the last four weeks, including $25 billion into emerging-market equities. There was a record $9 billion outflow over the last three weeks from the safe haven of gold, adds Bank of America. Jurrien Timmer, director of global macro for the global asset allocation division of Fidelity Investments, recently examined that dilemma. He looked at the inflation-adjusted total return for the S&P 500 SPX, +0.41% since 1871.

What is striking is that the stock market after the global financial crisis of 2008 is closely tracking the bull markets between 1949 and 1968, and the one between 1982 and 2000. “It’s a sample size of only two, but the analog suggests we may have a ways to go still,” he says.

So which of the two eras is the current phase more like? Timmer says the parabolic outperformance of large-cap growth stocks makes it more like the 1949-1968 era.

“One important distinction between the 1960s and 1990s is that the 1960s produced a secular upturn in inflation, while the 1990s saw no such inflection point. The growth/value trade likely depends on an upturn in inflation from here,” he adds.

He’s not sure whether that is going to happen. If the output gap — that is, the economic performance relative to normal — continues to close, Timmer says value and small-caps and non-U.S. equities could outperform growth, large-caps and U.S. equities well into 2021.

The buzz

Every payrolls report is important, but Friday’s release of the November jobs report is especially so, because the number has the ability to affect two potential sources of stimulus, from Congress and the U.S. Federal Reserve.

The data, which was layered in uncertainty with some forecasters expecting a decline, showed 245,000 new jobs were created. That was below the MarketWatch-compiled consensus of 432,000 jobs. The unemployment rate ticked down to 6.7% from 6.9%.

Talks continue over U.S. fiscal stimulus and a U.K.-European Union trade pact, so developments on either front could upend markets. An EU official said a trade deal could come by the end of the weekend if there were no last-minute snags, according to Reuters.

Pfizer PFE, -0.24% will be in the spotlight after The Wall Street Journal, near the end of Thursday’s session, reported that the vaccine the U.S. drugmaker is making with German partner BioNTech BNTX, -2.11% has faced supply-chain obstacles. The report was subsequently updated to reflect that Pfizer reduced its output guidance for 2020 last month.

Ollie’s Bargain Outlet OLLI, -9.75% may slide, as the discount retailer said comparable-store sales were growing by low single-digits in its fiscal fourth quarter, compared with the 15% growth in the third quarter ending Oct. 31. Its third-quarter earnings came in well ahead of estimates.

The market

Stock futures ES00, 0.52% NQ00, 0.30% held gains after jobs data, after a weak finish to Thursday when the Pfizer story was released.

Crude-oil futures CL.1, 0.94% also advanced. The yield on the 10-year Treasury TMUBMUSD10Y, 0.970% was 0.93%.

The chart

There are few businesses as hard-hit as hair salons, as this chart lays bare. Drawing on data from the Commerce Department, it shows that spending on hair cuts is running at 41% of pre-pandemic levels. It is as good a barometer as any to how normal, or not, the economy is.

By Steve Goldstein

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