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Markets react to vaccine success and Biden victory

Covid vaccine bottles

For financial professionals only

The start of November meant the start of another lockdown for many in Europe. As those lockdowns end, we look back over what was an extraordinary month, not just for financial markets, but for all of us in the fight against Covid-19.

Vaccines stole the limelight in November with Pfizer/BioNTech, Moderna and AstraZeneca reporting highly successful efficacy data. Last week it was announced that the Pfizer/BioNTech vaccine has been approved for use within the UK and will be rolled out this week.

US election outcome

As anticipated, US election week was a frantic one for the headlines but played out broadly as expected. In early counts the result seemed closer than the polls suggested, with Donald Trump picking up votes in the Sun Belt and a victory in Florida, a key battleground state. However, as postal counts trickled through, those early leads diminished, and Joe Biden ended with 306 Electoral College votes to Donald Trump’s 232.

While bitterness remains and the incumbent refuses to acknowledge Biden as the victor, he at least gave the clearest message yet that he will relinquish power if the Electoral College affirms Biden’s win. Biden has been powering ahead and building his team with some notable appointments. Janet Yellen will become the first female to head the Treasury Department – welcome news for Wall Street who foresee an effective working relationship with the central bank.

Uptick in markets

November also brought the World’s largest regional free trade agreement between 15 Asia Pacific nations named the Regional Comprehensive Economic Partnership (RCEP). The agreement covers 2.2 billion people and a total combined GDP of $26.2 trillion. This should be good news for the recovery of numerous economies that have been weakened by the ongoing pandemic.

Alongside confirmation from central bankers that monetary policy will remain loose for the foreseeable future, November was a record-breaking month for equities in many regions. The Nasdaq reached a record high and the S&P 500 had its best one month return since April. The FTSE 100 had its best return for 30 years and European equities, Japanese equities and US Small Caps all posted their best one month returns ever. We also saw a broadening of equity market returns with rotations into small cap stocks and more cyclical, value areas of the market. The energy sector, for example, was up over 25% and industrial and financials sectors recorded their biggest one-month gains since 2009.

The graphs below demonstrate the rotation into long-term unloved value stocks through November which is in stark contrast to the YTD figures which show growth as a style has powered ahead.

Value vs Growth – November

Value vs Growth chart - November

Value vs Growth – YTD

Value vs Growth chart - YTD

Nothing like a reality check

Gold suffered its biggest one month fall since 2016 which makes some sense as it’s often touted as a safe haven asset class during times of market stress. However, given the recent market buoyancy it was interesting to note that 10-year gilt and treasury yields hardly moved.

On a more sombre note, this should act as a reminder that globally we’re a long way from the end of this pandemic. UK, European and US central banks were vocal through the month in reiterating this message as we saw case numbers rise and hospitals overrun. The US was in the midst of a third wave of the virus with Thanksgiving travel feared as a potential contributor to increased transmission.

Elsewhere, the EU are struggling to gain unanimous approval for a financial rescue package and Republicans and Democrats continue to squabble over the same in the US. With the logistics, distribution and uptake of vaccines still to be known, it would be remiss not to acknowledge we still have some way to go before we can consider these incredibly challenging times completely behind us.



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