HOW WILL STOCK MARKETS RESPOND TO A SUCCESSFUL VACCINE ROLL OUT?

16.11.2020 News that a Covid vaccine has been shown to be 90 percent effective in third party trials provoked a powerful response from global stock markets. How will markets respond to a successful vaccine roll out?

Whilst the potential Covid vaccine still has to be formally reviewed for safety/effectiveness and authorised by the regulators the reported results do demonstrate strong ‘proof of concept’. Furthermore, the Oxford vaccine, which has had promising interim results, is also due to report the results of its third party trials by the end of the year.

The simultaneous shut down of the main advanced economies triggered a market panic which resulted in a rapid sell-off of all stock market sectors. However, as lockdowns were imposed ‘stay at home’ stocks subsequently saw heavy demand. These were the shares of technology companies specialising in areas such as internet shopping, video conferencing, social media and video streaming. In contrast companies with more traditional business models such a retailers, restaurants and airlines were attributed rock bottom valuations.

As the vaccine is rolled out and economic/social life begins to return to normal these trends should at least be partially reversed. So, at present the investment opportunity lies in identifying and investing in companies with more traditional business models that have good growth prospects as and when the economy normalises.

In contrast the broader technology sector is likely to come up against the problem that this year’s huge surge in demand for digital products and services is likely to have borrowed from next year’s sales. So, at some point this is likely to trigger a correction in the high-flying technology sector.

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This post was written by Robin