Stock market investors are starting to look beyond the coronavirus

Investors can finally see the light at the end of the tunnel.

Monday news Pfizer and BioNTech have made significant progress in their quest for a vaccine against the Covid-19 virus. Stock reinforced That fought throughout the health and economic crisis. Some markets broke new records.

Now, some euphoria Eroids, worsens. Doubts remain about a potential vaccine – including how and when it will be distributed, and whether Pfizer punches will end up as an international solution. Some caution is warranted. But for salaried fund managers to look ahead, details like these are irrelevant. The key is that the end is in sight.

“Healthily, this is all very important.” Said Salman Page, director of multi-asset investment at Unigestion in Geneva, “From a market perspective, it is not the case.” The US presidential election is over, leaving no serious doubts among fund managers that Joe Biden is He will take office in January, Mr. Paige said, and vaccine news opens up for the first time the true possibility that life will return to normal as soon as next year. “These are two major sources of uncertainty far less. We must witness a large uprising from here. “

Global stocks were already trading near all-time highs before news of a possible vaccine emerged, backed by a massive dose of monetary stimulus that central banks have been running since March to cushion 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 S&P 500 in the US.

Line chart of percentage change since October 13th showing technology stocks faltering as the vaccine breaks out

“Despite investors focusing on 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,” analysts at Goldman Sachs wrote on Wednesday. S&P 500 forecasts 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, from the 3,600 earlier expected.

Crucially, this week’s rally came with a twist: stocks that have benefited from the shift to work and play at home, such as Zoom, are down sharply, leaving the high-tech Nasdaq 100 index down more than 1 percent for the week. Meanwhile, stocks in airlines and movie chains rose, among other things, raising the possibility that so-called cheap and unwanted “value” stocks – especially in unfashionable industries closely linked to economic performance – will eventually return.

Value stocks suffered a A decade-long streak of losses, While stocks of growth, usually in sectors such as technology, were To tear. Monday’s news hit those trendy stocks, sparking a strong rally of bearish values.

The European Investment Group, Amundi, said in its 2021 forecast that the Pfizer vaccine “is a game changer”. But she warned that the road ahead would remain bumpy. “Markets are now pricing in a rosy scenario: widespread availability of the vaccine, ample liquidity, and policies that will remain relevant forever.” Chief Investment Officer Pascal Blanke said, “The sequence will not be so linear.”

So far, this has been proven. Major stock markets have not lost all of their luster from vaccine development. But most of them lost their gains at the end of the week.

This partly reflects the nature of Monday’s rally. Stocks and sectors hit by the virus rose, but the more prosperous markets were the ones that attracted the heaviest negative or short bets. Analysts said this was strengthened as investors reduced their short positions.

For example, the S&P 500 is up nearly 10 percent this year, and is at a modest 1 percent, weighed by the poor performance of big tech stocks. However, European markets swept up even more strongly, with the Stoxx 600 rising nearly 4 percent, the most since May. Within Europe, the gaps were also large. For example, the French CAC 40 index, which still bears scars in early 2020, jumped 7.6 percent – its biggest rise since the unrest in March and one of the largest rallies over the past two decades.

The quieter tone in the markets by the end of the week also confirmed how investors grapple with competing factors. The first is the elusive promise of a return to normality in the coming months. Markets are working to determine prices in the future today, so they are a standard model for introducing that possibility into asset prices now. But the other is the current grim reality of prolonged closures in Europe and accelerating rates of coronavirus infection in the United States.

Fund managers say time horizons matter.

“In the short term, there is potential for lockdowns in the US and more measures in Europe,” said Paige. “You can try to play that. But from our point of view we don’t want to take short-term views. That means we have to deal with some ups and downs along the way, but for us this is better than trying to time the news about the coronavirus.”

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