On Monday, the Dow and the S&P 500 soared to new all-time highs on massive volume, while the NASDAQ stayed relatively flat and was down today.

growth stocks

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But like the old saying goes, all that glitters is not gold. So, let’s take a look at what’s really going on, and then I’ll explain what smart investors should do now.

At first glance, this rally looks great. But if you dig underneath the surface, you’ll see that this was actually a “mean reversion” rally and a big shift out of growth and into value.

Case in point: The coronavirus oasis stocks that have been soaring in the pandemic, work-from-home economy, like Zoom Video Communications (NASDAQ:ZM), fell hard. Zoom dropped over 17% on Monday and then fell more than 7% today, though it’s still up more than 474% so far this year. Outdoor and camping gear company YETI Holdings (NYSE:YETI), dropped over 12% Monday, even though it’s up over 175% since the March 18 low.

On the flip side, prices for oil, which fell during the pandemic, climbed more than 8% in the sector’s best daily gain in six months and U.S. Treasury yields increased as the 10-year Treasury hit 0.83%, its biggest gain since March.

Travel and airline stocks, which had been hit hard during the pandemic, surged. For example, United Airlines Holdings (NASDAQ:UAL) climbed up to 27% at the peak of Monday’s rally and competitor airlines rose, while Royal Caribbean Group (NYSE:RCL), Carnival Corporation (NYSE:CCL) and Norwegian Cruise Line Holdings (NYSE:NCLH) all increased more than 30%.

European markets also had a big day Monday, with the European stock index, the Stoxx 600, up about 4% and European banking stocks increasing more than 12%.

So what’s going on?

For starters, folks in Europe are happy that Joe Biden is now President-elect, even though Trump hasn’t conceded. Regardless, the market’s not worried about the outcome at this point. The reality is that Wall Street loves gridlock in Washington, D.C., and given the House and Senate races, gridlock is a forgone conclusion. Clearly, investors cheered that it would make it more difficult for action on hot-button issues like healthcare, taxes and even technology companies.

An even bigger part of the market’s positive attitude has to do with the fact that Wall Street seemed to anticipate a robust, worldwide economic recovery because drug maker Pfizer (NYSE:PFE) announced that its coronavirus vaccine was more than 90% effective in preventing the disease among trial volunteers. Trial results for the vaccine remain incomplete, so we’re early in seeing whether this vaccine will be deployed. Still, investors sent Pfizer shares soaring nearly 8% Monday.

Working with its European collaborator, BioNTech (NASDAQ:BNTX), Pfizer said that if it can maintain similar results, the vaccine would be one of the most effective on the planet, like the one for measles. The company will ask the FDA for emergency use authorization for its two-dose vaccine later in the month, and by the end of the year, it’ll be able to make enough doses to immunize 15 million to 20 million people.

President Trump and the federal government and have said they will give Pfizer $1.95 billion to deliver 100 million doses under Operation Warp Speed, and provide the doses for free to Americans. However, Pfizer did not participate in the program or take any money from the government to conduct its coronavirus vaccine research and development.

Personally, I anticipate AstraZeneca (NASDAQ:AZN) will have a successful coronavirus vaccine as well. And there might be more.

To date, there are 11 vaccine candidates in late-stage trials, four of which are being conducted in the United States.

Plus, more COVID-19 treatments are coming online. The FDA issued on Monday an emergency use authorization for Eli Lilly and Company’s (NYSE:LLY) monoclonal antibody therapy to treat mild to moderate infections. Regeneron Pharmaceuticals (NASDAQ:REGN), which provided President Trump with its experimental COVID-19 antibody treatment, could also soon have the treatment’s use for the public authorized by the FDA.

With any luck, one or many of these vaccines and treatments will help beat back the pandemic, so this news is very, very good.

With all that said, I don’t think folks should worry about this market reversal for fundamentally superior growth stocks that have been doing well based on outstanding earnings and sales growth.

How to Play the Mean Reversion Rally

We saw a similar situation take place back in early September and mid-November 2019, when value stocks performed well for a brief period of time and then fizzled.

Now, a mean reversion is when investors buy weak stocks with little upside that might pop briefly, rather than stocks with strong momentum and plenty of future upside. In other words, what was up is now down, and what was down is now up. These low-quality stocks appear to be propelled higher by buying pressure from index funds and ETFs, as well as some short covering.

Just take a look at how my Portfolio Grader rates some of the travel stocks that surged Monday …

The bottom line is that this is not a normal, logical-looking rally. It won’t last. In fact, NCLH, RCL and UAL slipped lower today.

The truth of the matter is trends like work-from-home, medical testing and outdoor recreation are not going away any time soon. And when the dust settles, we’ll go back to the fundamentals. I expect solid earnings and sales will once again come to rule the roost well before Thanksgiving; i.e., my high-quality Growth Investor stocks.

The reality is we’re in the midst of a phenomenal third-quarter earnings season. While Wall Street has been distracted by the presidential election and rising coronavirus cases, companies have been unveiling better-than-expected results. Once we move past the presidential election, I look for Wall Street to refocus and for positive earnings to drive my Growth Investor stocks higher in the upcoming weeks.

And considering our blowout results so far, our Growth Investor stocks should lead the charge higher through yearend.

My Long-Term Outlook

Over the longer term, I believe stocks are poised to go much higher. In fact, I’m predicting the Dow will hit 200,000 in the coming years.

I know that sounds crazy, but history proves otherwise.

The Dow went on a 234% tear during the ‘80s, and by the end of the decade, analysts and the media were calling for a market crash in the early ‘90s, much like some naysayers are today. Instead, the Dow surged almost twice as high in the ‘90s as it did in the ‘80s.

In my special Financial Foreshock Summit, I’ll talk more in-depth about what will drive stocks higher. (You can watch my free briefing here.) I also share where I see the best opportunity to play the growth.

If you’re interested, you can click here for all the details. You don’t want to miss out on this next big bull run – and all the potential profits that come with it.

Note: The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owned the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:

Zoom Video Communications (ZM), YETI Holdings (YETI), AstraZeneca (AZN)

Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. 

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