Where Are We Headed?
This weekly is on the early side and I am wary of what Friday brings, especially as the debt ceiling saga gives rise to further bond market volatility.
The driver has been the positive Pfizer/BioNTech COVID vaccine candidate news announced on Monday 9th November. This has been most beneficial for short duration stocks, i.e. those which are sensitive to the economy, and hence the major global equity indices have rallied or not depending on the weighting of such stocks.
Simultaneously, there has been a resurgence of COVID-19 cases in Western economies. However, statistical analysis by Goldman Sachs shows that economies are less susceptible today than at the height of the crisis back in March. Therefore, in the absence of mass government-mandated lockdowns – in particular in the United States – markets may look through the current resurgence.
Vaccine To Close The Gap?
The global economy is still some 6% below where it was at the beginning of the year. Assuming studies confirm the safety of the vaccine, a global roll out of the vaccine could help close this 6% gap. Should this happen, it would set the stage for two years of strong global growth.
Over the longer-term, there is good reason to remain optimistic on the US economy. Tim Duy, a professor at the University of Oregon, gives four such reasons* :
There are no obvious financial bubbles;
As always, investors will be monitoring potential headwinds closely, outside the inevitable “unknown unknowns”. These include possible virus mutations, lockdowns (should the virus not respond to current social distancing measures), and President Trump refusing to concede the election. However, there is good reason to be relatively optimistic over the longer term.
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