“Bored already”, says Alistair Osborne in The Times. Equity markets were overjoyed when positive news of Pfizer’s Covid-19 vaccine trials broke earlier this month. But a similar update from AstraZeneca this week brought little more than a shrug. Global stockmarkets didn’t leap, but they have continued to trade close to recent highs. The MSCI World Index is up by 10% since the start of the month, with America’s S&P 500 up by 9%. The FTSE 100 has been a standout performer, gaining 15% in November, although British blue chips are still down by 15% for the year to date. Bulls have gone rampaging through bitcoin and oil markets.
Caught between Covid-19 and a cure
Never mind the market reaction, says Craig Erlam of OANDA Europe. The AstraZeneca vaccine is easier to store than its peers and is much cheaper. Investors must remember that vaccine makers are not in competition with each other. Constrained supply means that “the more successes we have the faster the global economy can get back on its feet… the light at the end of the tunnel is shining a little brighter.”
“It is the best of times and the worst of times, as Charles Dickens wrote”, says Randall Forsyth in Barron’s. “Optimism reigns” in markets as traders look forward to a strong rebound next year. A Bank of America survey reports that money managers have upped their stock allocations to the highest levels since January 2018. Yet back in the present a sagging recovery and new Covid-19 restrictions mean the current picture remains miserable. A vaccine next year is not very helpful if you get infected today, as John Authers points out on Bloomberg. The autumn virus wave is now very much in evidence in the US. New York City closed schools last week; the move hit “close to home” for many traders and triggered a pullback on Wall Street. Daily deaths are already at a six-month high and new infections continue to surge. “One last horrible dose of the virus” awaits us before this “dark winter” is over.
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The bulls prepare
US equity markets do look “a bit exhausted” after this year’s exertions, says Michael Wilson of Morgan Stanley. There is a decent chance of “one more drawdown” before the end of the 2020. Nevertheless, the outlook for 2021 is unambiguously bullish. The vaccines will bring a new multi-year economic cycle, which almost always powers stocks higher. “We forecast 10% upside over the next 12 months” for the S&P 500.
Not so fast, says Michael Mackenzie in the Financial Times. Investors who got in early during past economic cycles were buying in markets offering heavily discounted valuations. Yet US valuations are already historically high, effectively meaning that much of the future recovery is already priced in. That also goes for cyclical stocks: it usually takes four or five years for US small-cap and industrial share prices to make new highs after recessions, says Nicholas Colas of DataTrek. Yet both sub-indexes are already trading above their previous all-time highs in America and the economic recovery hasn’t even started yet.
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