With markets rattled once again by a resurgence of coronavirus cases and fears for the global economic recovery, domr strategists suggest that investors should stay the course.
Wednesday saw another sharp sell-off on Wall Street, with the Dow closing more than 500 points lower as the recent tech-fueled pullback persisted. Stocks in Asia Pacific broadly declined overnight and European markets were in the red.
Along with the downward trend in tech stocks, which had led the market rally since March’s crash, rising coronavirus cases in Europe, choppy economic data and uncertainty over further stimulus stateside have factored into investors’ jitters.
However, Nomura Asset Management strategist Ilan Chaitowitz on Wednesday voiced doubts over the staying power of this negative sentiment.
Chaitowitz argued that the uptick in Covid-19 cases coming into the fall should be treated as par for the course, as with other seasonal epidemics. Rather than eliciting a market sell-off as in March when the virus began to spread throughout the world, Nomura believes investors should position for infection rates to “collapse” heading into spring.
Several Covid-19 vaccine trials have now entered phase three, with the readouts expected over the next month. Chaitowitz said each passing day without a safety concern being flagged was cause for optimism.
AstraZeneca and Oxford University briefly halted their phase three trial, one of the leading vaccine candidates but have since resumed testing in the U.K. and are expected to deliver results shortly. Though the U.S. arm of the trial remains halted, Chaitowitz suggested that this would not derail European data, and highlighted that final-stage vaccine testing primarily explores unusual side effects, meaning a lack of material signals suggests the trial is on track.
Recent data suggests a fall in death rates from the virus in recent months, which Chaitowitz attributed to better health protocols and increased vigilance among the elderly.
Chaitowitz argued that emphasis on the “real-world” impact of the vaccine in terms of effective distribution only happening in the first half of 2021 “misses the critical point,” since just one vaccine would be enough for businesses to regain confidence and stock markets to “regain their poise.”
“With seven late stage vaccine trials reading out over the next few months — several could be in the Oct/Nov time frame — and each with 85% likelihood of success as a base case — it seems myopic for market participants to be dumping stocks today in the apparent fear of a resurgent lethal global pandemic,” he concluded.
‘Glass half full’
In a special report Thursday, Barclays analysts Ajay Rajadhyaksha and Amrut Nashikkar echoed Nomura’s optimism, suggesting that a Covid-19 vaccine is now a matter of “when, not if.”
Combined with anti-viral treatments, a “world that understands the disease better” and a possible burnout in some areas, they anticipate that the virus will not bring life to a standstill in the same way in 2021.
Although acknowledging the risk of a constitutional crisis and widespread civil unrest in the U.S. after the Nov. 3 election, with President Donald Trump refusing to commit to a peaceful transition of power in the event of defeat, Barclays remains overweight equities and is taking a “glass half full” approach to the recent downturn.
“Equity valuations are elevated, but much of the premium sits in mega-cap U.S. tech stocks. We expect some of this to dissipate as the march to normalcy continues and favor U.S. cyclicals and healthcare, as well as European equities over U.S. large tech.”