- Positive COVID-19 vaccine developments help reinforce our “glass half-full” market perspective.
- Investors will face a large amount of news flow through the end of the year and into the start of 2021, and we lay out key milestones and events we are focused on in the near term.
- We will continue to provide investors with updates as events unfold.
Investors continue to digest torrents of news across politics, healthcare and capital markets. This morning was no exception, with Pfizer and German biotechnology company BioNTech releasing encouraging data about its COVID-19 vaccine candidate. The companies reported that the vaccine proved to be more than 90 percent effective for the 94 subjects who were infected by the virus and took the vaccine. Dr. Anthony Fauci, the government’s top infectious disease expert, called the effectiveness rate “extraordinary” and said the vaccine would “have a major impact on everything we do with respect to COVID.”1 In addition to applauding the Pfizer/BioNTech results, Dr. Fauci commented that other vaccines in development could see similar positive results as testing unfolds.
Riskier asset classes including global equities jumped on these announcements, particularly in geographies struggling to curtail COVID-19 spread. Further, the hardest-hit sectors, including Energy, Financials, Airlines and Real Estate, moved sharply higher as a light at the end of the tunnel emerged. High-quality bonds and gold sold off as investors moved away from traditional safe havens. Today’s price movements appear to support our claim that medical news is more important than political news with respect to asset price movements.
That claim notwithstanding, last weekend’s news was also significant, with several major news organizations calling the Presidential election for former Vice President Joe Biden. President Donald Trump has initiated legal action and is contemplating other strategies to challenge the election. The House of Representatives appears to remain in Democrats’ hands despite Republican advances. However, with only 31 of 35 Senate election results called at this publication’s press time, potential early January runoff elections in Georgia could prove pivotal for future government policies.
While we remain long-term investors and encourage our clients to retain a multi-year, multi-cycle perspective, contextualizing current news and anticipating what’s next can help navigate through known milestones. To that end, we offer a framework for how we are thinking through the upcoming time period by breaking it down into more digestible parts based on anticipated events. Some of these events and phases will overlap, but we do view these as being at least in part sequential.
Phase/event 1: Post-election event considerations
Although election day was almost a week ago, we still do not have a definitive outcome across several key races. While news services have called the presidential election and it appears likely former Vice President Biden will ultimately occupy the Oval Office, we must anticipate legal challenges capturing headlines. Further, the full Senate election results remain inconclusive. We expect more updates on just how significant Georgia run-off elections may be in early January. In addition to legislative outcomes, a potential Senate split could have cabinet selection strategy implications for a new administration should the apparent former Vice President Biden’s victory hold. For now, we view the election clarity as a positive for riskier asset classes relative to the uncertainty present just before. That said, one of the key variables within this phase will be if we see policymakers work toward negotiating stimulus packages or if potential legislation awaits presidential and Senate outcomes.
Phase/event 2: Pre-vaccine COVID-19 spread
While it feels callous to discuss the capital market implications surrounding a pandemic, we are concerned about potential COVID-19 spread across Europe and the United States as temperatures drop and more activities take place indoors. Total coronavirus cases in the U.S. exceeded 10 million over the weekend, and Europe has represented more than half of the 3.3 million new cases worldwide, based on World Health Organization data.2 Markets have reacted negatively to COVID spread, and while investors anticipate some increase in COVID cases, more stringent lockdowns as second wave risks increase leave investors concerned about the path ahead. We, of course, would view a spike higher in these regions or a resurgence in parts of Asia that have been more successful restraining the virus as clear negatives.
Phase/event 3: Inauguration and first 100-day agenda
With election uncertainty still persistent, markets will have to digest what may emanate from Washington. Stimulus is top of mind, but tax policy, additional deficit spending measures, trade policy, healthcare considerations and other market-moving agenda items could be functions of Senate outcomes between now and Day 1. As always, we will lean heavily on our internal government relations staff and external research partners to help determine likely legislative paths and what they mean for clients.
Phase/event 4: Vaccine approval, distribution, uptake and efficacy
Today’s vaccine news is encouraging, and we continue to move closer to a medical solution. Recognizing that medical trials and safety data can change, several leading companies are deep in antiviral trials; having multiple potential candidates progressing in parallel is a clear positive. Questions about how many vaccines or regimens will be approved, how well they can be stored and distributed, which population subgroups will be prioritized, and how the public feels about taking a new medical solution and signals that they have taken it will determine the economic impact, let alone the medicines’ efficacy from a treatment standpoint. Again, a plurality of potential solutions leaves us optimistic about science’s prospects.
Phase/event 5: The “steady state” that follows
What life looks like following a distributed vaccine or medical regimen that successfully combats the novel coronavirus is an open question. How companies will think about business travel, their real estate footprints, how consumers react to more mobility opportunities for leisure and work and how economies adjust to aging populations with lower economic productivity growth relative to history are significant questions. From a broad asset class perspective, with very low starting yields for fixed income, bond market returns will likely be more subdued relative to history. Domestic equities are at all-time highs and emerging market and international developed market equities are close to all-time highs. Despite many sectors remaining subdued relative to prior highs, headline indices have done well. We continue to think that investors will benefit from owning technology and health care stocks over time given their positive long-term impact on society, but also expect some of the more challenged sectors to show some relative performance gains. We do think clients will benefit from owning Real Asset exposure should we see inflationary pressures emerge.
As always, we want to be a resource to you as we help you reach your financial goals. We retain our glass half-full perspective on the forward prospects for diversified portfolios. The capital market tools available to investors change in price and complexion based on heavy news cycles like this one, but the fundamentals that buttress our investment process remain consistent. A large part of our investment value to you as a client rests on communication and, as always, if we can help answer any questions on the current environment and your unique financial situation, please do not hesitate to let us know. Thank you for your ongoing trust.