Europe Heads Higher, Tech Under Pressure
Fiona Cincotta November 11, 2020 7:38 AM
The rotation from tech stocks into value stocks in response to a vaccine coming is driving market moves.
Wall Street closed mixed with a significant divergence between old world stock and tech stock as investors continue to price in the Pfizer vaccine news and a return to “normal” life. The rotation from tech stocks into value stocks in response to a vaccine coming is driving market moves. The Dow closed 0.9% higher, whilst the tech heavy Nasdaq closed -1.3% in the red.
European stocks are pointing to a firmer start still buoyed by the game changing vaccine news from earlier in the week. In light of Pfizer’s announcement that its vaccine was found to be 90% effective, expectations are now for the global economy to recover considerably more quickly. Goldman Sachs is predicting US growth will be back to pre-pandemic levels by Q2 of 2021. Expectations for UK growth is , in some cases equally optimistic, and the UK could also return to pre-pandemic growth levels potentially as soon as mid-2021.
The UK NIESR GDP reading for the three months to October is expected to show that momentum in the British economy kept building through Autumn, up 20.1% , compared to 15.2% in the 3 months to September. However, with lockdown 2.0 now in full swing November is expected to show a sharp fall. That doesn’t mean to say that October’s print is meaningless, a strong reading would reveal that the UK economy is falling this month from a stronger position.
Those stocks which suffered the most during the pandemic, such as travel, aviation and hotel stocks are seen as those benefitting the most in this weeks’ vaccine inspired rally. Other beaten down areas of the market such as energy and banks have also been in favour as investors search for areas of value .The euphoria of Monday has certainly calmed considerably, particularly given the very difficult few months that need to be navigated through first before any covid vaccination becomes widely available, hopefully by the spring.
Divergences in Europe
Equities in the UK, France and Spain are once again looking to outperform the Dax. This could be because these are the countries which have been hardest hit by the pandemic with higher mortalities and a bigger hit to the economy – therefore they stand to gain more from a vaccine. The other point to consider is that the Dax had already put in an impressive run up from its mid-March lows, outperforming other EU indices to trade almost at pre-pandemic levels even prior to the vaccine announcement.
In an otherwise quiet day on the economic calendar, investors will be looking towards a speech by ECB President Christine Lagarde for clues over the economic outlook for the region particularly following the vaccine news and the prospects of stimulus.
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.