Global shares rallied strongly overnight on positive news on a Covid-19 vaccine.
Drug companies Pfizer and BioNTech announced that the vaccine was proving to be 90% effective in protecting against the disease in participants in their current phase 3 trial. Although the results are preliminary, in that they are only based on a small sample of the total number of people enrolled in the trial, an 90% efficacy rate is well above what had been touted some months ago. Pfizer is now progressing to get emergency use approval by the US Food and Drug Administration (FDA), with hopes to have the vaccine for release by the end of the year. Encouragingly for Australia, the Pfizer vaccine is one of four that the Federal Government has agreed to sign an agreement to purchase if indeed it become available.
Stock markets rallied strongly on the news, with the FTSE100 in the UK and German Dax gaining 4.7% and 4.9% respectively. US markets were also up strongly, however faded somewhat into the close, with the S&500 ending 1.2% up on the day. However more importantly, there was a wide disparity in performance across different parts of the market, with some companies performing strongly, while others closed the day lower. The general theme being that companies, who’s success is predicated on the economy reopening, such as travel, airlines, and retail did well, while many of the technology stocks, which up until this point have been outperforming, where sold off. The Nasdaq100 as an example, declined 2.2% on the day.
We are seeing a similar theme transpire in Australia today. Although the ASX200 Index is higher, the gains have been limited to certain part of the market, specifically those that will benefit from the global economy reopening, such as travel, property trusts, and the major banks. On the other hand, many of the stocks that have rallied strongly over the past couple of months, including technology, and consumer discretionary stocks are seeing sizable declines. While not directly related, gold stocks are also in decline today, with the spot gold price down heavily in overnight trading.
In terms of our current portfolios, both the ASX Momentum and ASX Quality portfolios have taken a hit today, as they are both currently exposed to many technology names. However, bear in mind, many of these names have been great performers over the past several months. Meanwhile, many of the Blue Chips, in particular energy stocks, property trusts, and the major banks, which have lagged over recent months are rallying strongly today. There is a risk that this theme could play out for a period of time, which may lead to some underperformance in the short-term. In the case of stocks within the technology sector, which has likely seen the long-term tailwinds brought forward, we would expect any weakness to offer good buying opportunities.
