NEW YORK (Reuters) – As winter approaches, U.S. equity investors are assessing the prospects for improving a COVID-19 vaccine against a resurgence of the pandemic in the United States.
Several market strategists have predicted big gains in U.S. stocks in 2021, as long as Congress passes further fiscal stimulus and a vaccine becomes widely available in the first half of the year. But the path for stocks could be bumpy while investors wait for these developments, they said.
In recent weeks, investors had far exceeded the immediate risks of the pandemic. The benchmark S&P 500 recently peaked thanks to evidence of high efficacy rates in two experimental vaccines – from Moderna Inc and jointly from Pfizer Inc and BioNTech SE. Both vaccines could be ready for authorization and distribution in the United States within weeks, Health and Human Services Secretary Alex Azar said.
Still, the pandemic remained an immediate threat as the death toll in the United States from the disease rose to 250,000. The S&P 500 fell more than 1% on Wednesday when New York City announced it was shutting down operations. public schools.
Economic indicators, including an increase in jobless claims last week, indicated that the recovery may have stalled, reflecting the need for further fiscal stimulus, some investors said. Data from the IHS Markit Purchasing Managers Flash Index and the Conference Board’s Consumer Confidence Survey are expected to be released next week.
“We expect a vaccine to become partially available this year, but that still leaves a void,” said Colin Moore, director of global investments at Columbia Threadneedle Investments.
Further signs of the worsening pandemic could boost volatility in US stocks. The Cboe volatility index, known as Wall Street’s “fear gauge,” fell sharply after the US presidential election, but has stabilized and remains above its long-term average of near 20 Futures on VIX also reflect high expectations for market fluctuations throughout the first half of the year. 2021.
Questions about more stimulus measures fueled expectations of volatility, investors said. Two US Senate second-round elections in Georgia, slated for January, could decide which political party controls that chamber and hence the scope of further relief in the event of a pandemic.
“The big event risk in 2021 could be that it’s just completely irrelevant,” said Derek Devens, senior portfolio manager of Neuberger Berman’s options group, referring to other stimulus measures . “It would be a pretty negative event for the market.”
Some strategists plan to bid on safe haven currencies to protect against market declines. TD Securities strategists wrote on Tuesday that they expect the dollar, which has weakened this month, to gain for a brief period in part due to “the changing COVID realities.” Societe Generale recommended options strategies that would benefit from a strengthening yen.
But overall, investors largely expect any further decline in US stocks to be fleeting. Restrictions on mobility and economic activity in response to the increase in COVID-19 cases will likely be more limited than in the spring, they said. New York, for example, has kept stores and restaurants open even as schools close.
Just seeing a light at the end of the tunnel helped limit investor anxiety, said David Lefkowitz, head of Americas equities at UBS Global Wealth Management. Even if a stimulus package doesn’t materialize as expected, optimism about a vaccine could blunt any impact on U.S. stocks, he said.
“There is a pretty clear line of sight for improvement starting after the first quarter,” he said. “I don’t think we’re going to see a huge pullback because the market knows this is a very temporary situation.”
Reporting by April Joyner; Edited by David Gregorio