After another exciting week of medical and political developments, equity markets have had one of the strongest Novembers on record (so far), with the S&P 500 up +11%. Volatility is down to its lowest since before the pandemic. These are very bullish signals, and we agree with Mr. Market, there are strong reasons for equity investors to be optimistic.
Last week, we reported that there were now three coronavirus vaccines close to approval. Pfizer (with collaborator BioNTech) and Moderna were both able to show efficacy rates of 95% in phase three trials. Oxford and AstraZeneca’s vaccine isn’t quite that effective (although it is still more effective than the average flu vaccine) but it is cheaper to produce by a factor of five, and has the highest number of pre-orders by far at 3 billion. In addition to the “Big Three” vaccines, we have conducted a brief survey and discovered another eleven vaccines in advanced stages of development.
This is fantastic news from a humanitarian perspective and it is also great news for investors, as it raises expectations for a stronger economic recovery in 2021 and beyond. The lockdowns and lower activity of 2020 means many consumers in developed and emerging markets have higher savings levels, in other words: pent up demand.
The combination of a vaccine-led return to normal activity combined with pent up demand and higher savings rates means 2021 could see much stronger than expected economic growth… and this bodes well for equity markets.
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