Coronavirus vaccine effectiveness results published by Pfizer and BioNTech triggered a wild stock market rise around the world. The markets were excited at the prospect of investing in stocks which were severely affected by the pandemic – particularly cyclicals.
Although we have been saying it will happen, it’s another thing entirely to see the enthusiasm for these stocks playing out this week.
Until now economic concerns made economically sensitive cyclical stocks look too scary. Markets have been actively debating what comes next – there are 2 divergent futures. The bears are foreseeing a “growth/technology” stock bust versus the bulls who believe in a strong cyclical recovery from depressed earnings.
The bulls caused a massive rotation out of growth/tech stocks to value/cyclical recovery stocks.
Structural earnings growth is unusual (particularly during covid) and therefore prized. It is so rare that people are happy to pay up for it – making it highly valued.
Growth/tech stocks are expensive as a result. They have had a strong sustainable competitive advantage which means they could grow when most others could not. The US markets have been swept up in a frenzy of buying in these technology stocks. Indeed, much of the growth in the US markets has been from just a small number of technology stocks.
With the Pfizer coronavirus news “real economy” stocks are rebounding and growth stocks are falling. It is part of what we discussed in a recent blog – the bull and bear views playing out. Right now the bulls are winning. What we are seeing is the tech stocks moving down and cyclicals on the rise.
Australia benefits as we haven’t got the tech stock weightings and our cyclical stocks have started to respond!
Where else but shares?
A successful COVID vaccine will pave the way for the global economy to gradually return to normal, which should benefit even the worst effected stocks (eg Oil/Gas). Government stimulus and Biden’s election should lead to improving global conditions. So all positive with the only caveat being that the vaccine needs to be effective and safe.
Remember, effectiveness is great – but it is still early days for a vaccine and its testing. The speed means that normal safety standard have been lowered. For the markets we will continue to see variable periods based on “confidence” building in a final vaccine – no matter where it is from.
Overall, there is no-where else to invest with greater prospects than in the share market. It is the best alternative; especially as activity is beginning to show signs of a big turnaround – the much-debated V-shaped recovery – AND prospects of a vaccine.
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