The prospect of a possible return to normality following the announcement of successful vaccine trials has made investors understandably excited, with stock markets around the world surging.
Those companies which have been beaten down hardest by lockdowns – such as airlines, leisure and hospitality – surged dramatically.
At the same time, government bond yields rose, the price of gold fell and oil rallied sharply.
Is this the start of a major rotation? Quite possibly. We may finally have found the catalyst to spark a move away from the “stay-at-home” stocks that have benefited from lockdown, towards recovery stocks.
There would no longer be a need to pay a large premium for the few areas for growth, if all sorts of companies return to growth as the economy recovers.
The vaccine news, combined with medical advances that make the virus more treatable, mean that the probability of an L-shaped recovery has been significantly reduced.
The potential vaccine also reduces the risks associated with politicians and their success in propping up their respective economies or controlling the virus. Looking ahead over the next six to 12 months, the vaccine news makes it less likely that we will need fiscal stimulus to plug the demand gap associated with potential lockdowns.
Compared to the end of October, the uncertainty that has plagued us through most of 2020 has dramatically declined.
Suddenly there is cause for optimism for 2021.
This article is issued by Portland Financial Management Limited which is regulated by the Financial Conduct Authority. Nothing in this article should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This article may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.