Global Stock Market Breathing After Vaccine Rally

 

Written: 20/11/12 06:50 GMT FXTM Senior Market Strategist Hussein Sayed 

Stocks rose sharply this week on news that the Corona 19 vaccine developed by Huizawa Bioentech on Monday had more than 90 percent anti-infection effect.  Although the global stock market has staged a remarkable rally, what attracts my attention is elsewhere. What was even more surprising was the fact that shares of FANG+ Internet platforms plunged sharply and funds shifted to economy-sensitive sectors. The NYSE FANG+ index fell 3.2 percent Monday and again 2.5 percent Tuesday. On the other hand, banks, travel and energy stocks all rose more than 10% over the two days. 

The rise in long-term bond yields in the U.S. and advanced countries by more than 0.10 percent also supports the inflow of funds into cyclical stocks and a sharp drop in the Pandemic benefit sector.  

However, the trend turned around on Wednesday, with tech shares largely contributing to a 0.76 percent rise in the S&P 500 index, while basic materials, energy and financial shares all closed in negative territory.     

Vaccine circulation quickly withered as investors realized that Pandemics would not disappear immediately. Vaccines are still considered a big boon after the spread of the corona, but even if they are developed, they cannot return to normal life in a few days or weeks.  Eventually, it depends on when the vaccine can be mass-distributed and how quickly economic activity returns to the pre-fandemics level. Lockdown and social distance will be implemented throughout the winter in many countries, including Europe, so you have to continue to rely on untact companies for the time being. 

If the second wave in Europe and the third wave in the U.S. are less damaging than the first, more investors are likely to reduce their exposure to technology and increase their economic sentiment. But this won't be one-sided and there's no guarantee of further tech selling. In any case, Corona 19 has caused structural changes in the way companies operate, and these changes can last forever. 

The risk that is now completely ignored is the constitutional crisis in the United States. If you look at President Trump's Twitter account, you can see what this means. The lame-duck president continues to reject the election results and seems unwilling to make concessions, but the mayor ignores his tweets and comments as there is no evidence yet to support Trump's alleged vote rigging. If President Trump's court case delays approval of the election results, this tail risk could be reflected in the stock market and other assets.