Stock market investors start to look beyond coronavirus

Date: 14 November 2020

Author: Katie Martin and Robin Wigglesworth

Source: Financial Times


Earlier on Monday, Pfizer unveiled its coronavirus breakthrough and the news electrified the financial markets. Investments poured into global stock funds through the week, breaking records of at least two decades.


Stock inflows in the week to Wednesday amounted to $44.5bn, including more than $32bn invested into US stock funds, according to data provided EPFR Global, making it the largest weekly haul by equity funds recorded by EPFR, as well as the second-biggest intake by US stock funds since 2000. The record-breaking event spans from investors putting their money on the vaccine from Pfizer and Germany’s BioNTech in a hope to quicker global recovery.


The new commitments were driven by large institutional investors, including pensions and endowments, which added $41.1bn to their stock positions this week. Retail investors, by contrast, accounted for just $3.3bn of the inflows. While online brokerages such as Robinhood have had a surge of trading activity this year, much of it has been directed to individual stocks, bypassing traditional fund managers.


Climbing more than 9 per cent since the start of November, marking benchmark S&P 500 best 10 trading days since April, when the Federal Reserve promised additional support for the market and stocks bounced off of their lows for the year. The index closed at a new record high on Friday for the first time since the start of September.


“The vaccine announcement supercharged the ‘return to normalcy’ rally that followed the US election,” said Matt Gertken, a strategist at BCA Research. “It will take time to distribute these vaccines but the world can look toward economic recovery next year.”


The rotation back into US stocks reversed the vast majority of outflows tallied since the year began, and followed the result that Joe Biden had won the US election. US equity futures began rallying on that news, which preceded the announcement from Pfizer and BioNTech on Monday morning.


With the victory of Mr Biden, expectations of investors have now shifted to more predictable policymaking and economic stimulus, says Cameron Brandt, Director of Research at EPFR. He also added that the influx of cash into equity funds favoured large-cap companies, even though small-caps had far outpaced their bigger rivals over the five trading days.


The prospect of a divided government, where Republicans hold the Senate, has also prompted investors to dial back their expectations of dramatic regulatory or tax changes when president-elect Biden is inaugurated in January, Allianz Global Investors portfolio manager Burns McKinney said.

That could boost stocks further. John Normand, a strategist with JPMorgan Chase, said on Friday that US stocks had “one of the best backdrops for sustained gains in years” and that the election outcome presented a “Goldilocks outcome for equities”. The bank forecasts the S&P could climb a further 12 per cent to reach 4,000 by early next year.


Rising coronavirus cases and further travel restrictions could still hamper US equities, and Lisa Erickson of US Bank Wealth Management said she was still avoiding the “scene of the accident” stocks hit hardest by the pandemic. However she said that vaccine developments had provided new optimism to the market.


“That provides not certainty but some nice tailwind for further reopenings and upturn,” she added.


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