News on Monday that Pfizer and BioNTech had achieved a breakthrough in their quest for a vaccine against the Covid-19 virus spurred actions that have struggled throughout the health and economic crisis. Some markets have broken new records.
Now some of the euphoria is fading. Doubts persist around the potential vaccine – including how and when it will be distributed, and whether Pfizer’s jabs ultimately become the international solution. Some caution is in order. But for fund managers paid to look ahead, those details are irrelevant. The key is that an end is in sight.
“From a health perspective, this is all pretty important. But from a market point of view, this is not the case, ”said Salman Baig, multi-asset investment manager at Unigestion in Geneva. The US presidential election is over, leaving no doubt among fund managers that Joe Biden will take office in January, Mr Baig said, and that vaccine news first opens the real possibility may life return to normal as of next year. . “These are two major sources of uncertainty that are much lower. We should have a large gathering from here.
Global stocks were already floating around historic highs before the announcement of a potential vaccine erupted, augmented by the huge dose of monetary stimulus administered by central banks from March to ease the financial impact of the pandemic . But Pfizer’s breakthrough was still enough to set new records in the MSCI All World Index and the benchmark S&P 500 in the United States.
“Despite investor attention to the potential political implications of the Biden presidency, the Covid-19 vaccine is a more important determinant of the trajectory of the economy and the stock market in 2021,” Goldman analysts wrote on Wednesday Sachs as they lifted their forecast for the S&P 500 for the coming months. The bank now expects the index – which closed at 3,585 on Friday – to reach 3,700 by the end of this year, up from 3,600 expected earlier.
Importantly, this week’s rally has been tweaked: Stocks that benefited from the shift to work and home play, like Zoom, fell sharply, leaving the highly tech Nasdaq 100 index down more than 1 % for the week. Meanwhile, shares of airlines and movie chains, among others, have skyrocketed, raising the possibility that cheap and unloved so-called ‘value’ stocks – mostly in closely related old-fashioned industries. to economic performance – can finally experience a resurgence.
Value stocks suffered a ten-year streak of losses, while growth stocks, typically in industries such as tech, were in tears. Monday’s news hammered these trendy stocks and sparked a powerful rally for questionable value.
Amundi, the European investment group, said in its outlook for 2021 that the Pfizer vaccine “is a game changer.” But he warned that the road ahead will always be bumpy. “The markets are now evaluating in an optimistic scenario: wide availability of a vaccine, abundant liquidity and policies that will forever remain accommodating. The sequence will not be as linear ”, declared Pascal Blanqué, director of investments.
So far this has been confirmed. Major stock markets have not lost all of their shine from vaccine development. But most lost ground towards the end of the week.
This partly reflects the nature of Monday’s rally. Stocks and virus-battered sectors rose, but the most buoyant markets were those that had drawn the heaviest weight of negative bets, or shorts. These were reinforced when investors reduced their short positions, analysts said.
The S&P 500, for example, up nearly 10% this year, gained a modest 1%, held back by the underperformance of large tech stocks. European markets, however, rose more vigorously, with the Stoxx 600 index gaining nearly 4 percent, the most since May. In Europe, the differences were also significant. France’s CAC 40 index, for example, which still bears the scars of early 2020, jumped 7.6% – its biggest rally since the tumult of March and one of its biggest rallies of both. last decades.
The quieter tone of the markets at the end of the week also underscored how investors grapple with competing factors. One is the tantalizing promise of a return to normal life in the months to come. Markets are used as valuation in the future today, so it is normal to build this outlook into asset prices now. But the other is the grim current reality of extended lockdowns in Europe and rapidly accelerating coronavirus infection rates in the United States.
Time horizons are therefore crucial, say fund managers.
“In the short term, there is the prospect of lockdowns in the United States and further measures in Europe,” Baig said. “You can try to play that. But from our point of view, we don’t want to have short-term views. That means we have to eat up some volatility along the way, but for us it’s better than trying to time coronavirus news.