Game Changer

Pfizer and BioNTech’s game changing announcement that its vaccine had been found to be more than 90% effective in a late stage trial added more fuel on a stock market rally that was already underway following President-elect Biden’s election win and likely split Congress.  It was the time for beaten up value/travel/oil stocks to shine while conversely stay at home stocks have come under pressure.  However, that story appeared to reverse overnight, with tech stocks making a comeback, suggesting that it’s not going to be a one way bet for value stocks. 

One obstacle is the rampant increase in virus cases in the US and Europe and risks of more lockdowns. Though the vaccine news is clearly positive its worth highlighting that it could take some time for any vaccine to be rolled out in sufficient numbers to allow for an opening up of economies anytime soon.  In the meantime, we still have to contend with a big wave of virus infections in Europe and US, which implies more economic pain to come.  All of this could put a renewed dampener on risk sentiment and limit the rally in stocks in the near term.  

Technical indicators (Relative Strength Index) suggest resistance in the short term; for example, the US Russell 2000 index (a broad small cap index) is verging on hitting Fibonacci retracement levels around 1746, while its also above its upper Bollinger band.  Not helping tech stocks is the regulatory stance, with Amazon hit by an antitrust charge from regulators in the EU.  The USD’s weakness also looks overdone in the short term. In particular, technical indicators show that Asian currencies and dollar bloc currencies (CAD, AUD, NZD) look stretched. The USD is likely to make further gains in the short term even as its medium term outlook remains more negative.

Meanwhile Republicans are increasingly standing with President Trump in not accepting the outcome of the election, fuelling concerns about the transition process, even as President-elect Biden’s lead in various states has grown. Many are doing so with an eye on 2024 elections. Georgia is auditing the presidential results in its state by hand, but even so, it seems extremely unlikely that Trump can reverse Biden’s 14k lead in the state and even if that does occur it wouldn’t change the outcome. 

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