Europe Heads Higher, Tech Under Pressure

The rotation from tech stocks into value stocks in response to a vaccine coming is driving market moves.

Charts (4)

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. 

Faster global economic recovery
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.

UK NIESR GDP data 
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.

Vaccine trade
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.

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