It is an understatement to say that a lot has happened since our last market update on the 14th of October. Two key events have changed the dynamic of the investment landscape, both in the short and long term.
Democratic presidential candidate Joe Biden became President-elect after he won key state Pennsylvania which boosted his Electoral College votes to 290, relative to Donald Trump’s 214. Almost a week later, the president still hasn’t conceded, having tweeted the election was ‘stolen’ from him and confirming that he will take legal action to contest the vote.
Despite the potential for Supreme Court intervention, gains were seen across the equity markets, with investors in many regions expecting the new US administration to expand fiscal stimulus and improve measures in the fight against COVID. At the very least, the cloud of uncertainty which plagued investors for so long, has almost been lifted. Sentiment in China and other regions of Asia, in particular, has improved with Biden being seen as a positive for trade and technology policy – though much remains to be seen on this matter, especially considering rhetoric from the Democratic party in relation to China in the lead up to the election.
It is also prudent to point out that control of the Senate will not be resolved until the runoffs are conducted in January 2021. The runoffs are secondary elections which are held on a state by state basis where no candidate met the threshold number of votes required the first time around. Against the backdrop of a rolling pandemic crisis, whilst more fiscal and monetary policy support is expected in the US, it will likely be put on hold until this is resolved.
Even more recently, stock markets have soared on US drug maker Pfizers news that their COVID-19 vaccine is 90% effective, with the UK’s FTSE 100 alone jumping nearly 5% on this news. Pfizer have collaborated with BioNTech to create the vaccine and based on historical results, 90% effectiveness for a first-generation vaccine is very impressive. They have also gone on to state that their creation of this vaccine will greatly increase the probability of others like them also creating successful products. This is key because one COVID vaccine will not be enough, especially considering this first generation vaccine needs to be kept in ultra-cold conditions and will require two separate injections, three weeks apart which could severely hamper global distribution.
Three important questions about the vaccine remain. One is the extent to which it works in elderly people, one of the most vulnerable groups and who may not respond well. Another is whether it prevents infectiousness and not just symptoms (despite preventing symptoms, you may still be able to spread to others). Lastly, the long term efficacy of this vaccine is entirely unknown.
It would not be a global update piece without a brief overview of Brexit. The UK and the EU remain on the edge of a ‘No Deal Brexit’. Whilst trade negotiations have been ongoing, the pandemic has understandably overshadowed them. There is a reasonable chance of some form of deal being put together in late December due to a combination of the pandemics’ effect on the UK and EU economies and compounding effect that a no deal would have. Until then, however, it is likely that the ‘no deal is better than a bad deal’ rhetoric will continue.
Whilst there are many positives to be taken from recent news, as we have reiterated across this recent period, we expect to see volatility in investments both now and moving forwards. We will continue to monitor global affairs and the impact they have on the markets intensively.
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