Market underestimates possibility of vaccine, Goldman Sachs strategists say


The market is underestimating the possibility of a vaccine, say strategists at Goldman Sachs.

Forecasts assume a nearly 40% chance that a vaccine will be widely available by the first quarter of 2021, and strategists, led by Kamakshya Trivedi, say there’s a good chance at least one vaccine will be approved by the Food and Drug Administration. by the end of November and widely distributed by the middle of 2021. “This type of timetable could allow a substantial increase in GDP [gross domestic product] compared to a ‘no vaccine’ case, particularly in the United States, which is likely to lead the vaccine race and will likely experience worse results than in Europe without a vaccine, ”say strategists.
The sharp rise in vaccine odds is one of the main reasons the stock market has managed to reach new highs even without definitive improvement in health outcomes in the United States, strategists add, the other reason being declining rates. inflation-adjusted bond yields.
Le S&P 500 SPX,
+ 0,64%
is up 49% from its March lows, and the technology-based Nasdaq Composite COMP,
+ 0,52%
set 31 records this year. The current level of the stock market is consistent, they say, with a 60% chance of not getting vaccinated.
“Based on these estimates, options markets may understate the fat of the two ‘tails’, especially the case on the upside. Out-of-the-money calls on the S&P 500 (and some other indexes) still seem attractively priced given our view of the vaccine schedule results, ”they say.
Strategists also claim that the US election is underestimated, not for its impact on domestic politics but for international relations. “The international implications both in the run-up to elections and beyond will be just as important for the direction of the market in the months to come,” they say. While the slow-motion decoupling of the United States and China is likely to continue regardless of who wins, “a Biden administration would likely use different tactics, including increased cooperation with traditional allies and less aggressive use of tariffs.” This, in turn, could lead to another dollar leg DXY,
+ 0,06%
down, especially against the USDCNY yuan,
+ 0,23%.

A vaccine could trigger a new rotation to traditional cyclicals, steeper bond market yield curves and outperformance in emerging market currencies and equities. “We suspect it is still too early to aggressively position ourselves for this change, but we believe that exposing options in some of these areas may already make sense,” they say.
Risks of reopening schools, they add, could extend the theme of low real rates, tech leadership and last month’s defensive rally. “But with some of these movements getting more and more stretched, investors should be open-minded about the possibility of a change in leadership in global markets in the coming months, especially if the news flow on the vaccines continues to be encouraging, ”the strategists said. .


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