Market Briefing – 08th December

“Covax” update

2nd December 2020

“A coronavirus (COVID-19) vaccine developed by Pfizer/BioNTech has been approved for use in the UK.

The vaccine will be made available from next week.

The vaccine has met strict standards of safety, quality and effectiveness set out by the independent Medicines and Healthcare Products Regulatory Agency (MHRA).

Other vaccines are being developed. They will only be available on the NHS once they have been thoroughly tested to make sure they are safe and effective.”(1)

Market reactions

Markets have surged in November in response to the announcement of positive results from coronavirus vaccine – Covax – trials, perhaps suggesting an economic rebound in 2021.

As shown by the iShares tracker below, the UK’s blue chip stock market has had its best month since 1989(2), boosted by the growing optimism that an early ‘Covax’ could cause a quicker than expected economic recovery from the pandemic-infused recession.

Year to date 2020                                                                   November 2020

Source: FE Analytics(3)

The increase in value of over 12.5% in November 2020, surpassed the 11.5% increase in May 1990(4).

Not since the inauguration of the 41st US President, George H. W. Bush, and when Gene Pitney and Marc Armond were Number 1 in the UK charts with ‘Something’s gotten hold of my heart’ in January 1989(4) has there been an increase of such a size in one calendar month.

Although November’s numbers are clearly positive, the negative returns of over 14% remain well below the start of the year.

Records were broken in Europe too. The European Stoxx 600 index(5), which includes some UK stocks, increased by 13.7%, ahead of the previous record of 13.5% set in April 2009(6).

Turning to the US, Donald Trump’s defeat by Joe Biden in the US election has also driven some record rallies, as hopes that a Democratic White House will provide additional injections of financial support for the world’s largest economy.

Dow closes above 30,000, setting new record

Source: FE Analytics(2)

At 30,000 points (in US $), the Dow Jones Industrial Average was up 61% from the 23rd March 2020 low(6).

It’s been just over 950 trading days since the Dow first hit 20,000 on 25th January 2017(6).

However around 160 trading days after crashing to around 20,000 as Covid-19 caused the world to enter a deep recession, on 24th November 2020, the Dow Jones Industrial Average hit a record 30,046.

What should this tell you?

Remembering that “past performance is no guide to future returns”, no matter what short-term events occur, including the positive promise of a ‘covax’, or the reactions of major stock markets, from an investment perspective, investors should ignore these short-term events.

Focus should be on ‘smart diversification’. In other words, investing should be across different asset types, such as bonds as well as equities and across geographical jurisdictions, so they are not confined to one or two countries or regions. It should also involve investing across investment styles, that should include active management and index/passive investing, and across different investment philosophies that including growth and value.

Although ‘smart diversification’ doesn’t guarantee performance in any way and does not eliminate risk completely, having a diversified portfolio across asset types, geographical jurisdictions, investment styles and philosophies can help investors minimise their risks.

It is also important to remember that it is often the case that investors have a long-term investment time horizon. So, although ‘smart diversification’ does not guarantee against loss, it will likely help with the most important component of reaching long-range financial goals whilst minimising risk.

As we have said before, we will continue to monitor the current financial situation and keep you notified of any changes that are made. If you would like to discuss how the current situation might affect you, then please seek professional financial advice to discuss your financial situation further.

The next market briefing will be published on 18th December 2020.

Sources

1. https://www.nhs.uk/conditions/coronavirus-covid-19/coronavirus-vaccination/coronavirus-vaccine/
2. https://www.theguardian.com/business/2020/nov/30/ftse-on-course-for-best-month-on-record-after-covid-vaccine-hopes
3. FE Analytics
4. https://www.thetimes.co.uk/article/ftse-enjoys-best-month-for-30-years-s8snsc07m
5. An index tracking 600 publicly-traded companies based in one of 18 EU countries. The index includes small cap, medium cap, and large cap companies. The countries represented in the index are Austria, Belgium, Denmark, Finland, France, Germany, Greece, Holland, Iceland, Ireland, Italy, Luxembourg, Norway, Portugal, Spain, Sweden, Switzerland, and the UK – https://financial-dictionary.thefreedictionary.com/Stoxx+600
6. https://www.barrons.com/articles/dow-crosses-30000-as-stocks-stage-a-v-shaped-rebound-51605548142