November’s vaccine announcement was a pivotal moment for markets. Before the announcement, stocks were stuck in two-speed mode; resilient growth companies were at all-time highs, while more cyclical sectors had been pummelled. The vaccine has flipped sentiment on its head, as investors poured back into cyclical stocks, anticipating an end to pandemic lockdowns. However, we think significant questions remain. How long until the vaccine can fully reopen the economy? Have changes to consumer behaviour been permanent? Will interest rates stay low?
The UK’s second lockdown had a muted effect on markets. Many businesses were better prepared than in the spring, and much of the UK stock market derives revenue from overseas. In fact, the pound strengthened over the month, as rumours spread that a Brexit deal was getting closer.
The UK stock market has lots of cyclical companies, which means it is more tethered to the ebbs and flows of the economy. The vaccine was therefore great news for the FTSE, which is why we added to our UK index funds early in the month. Some of the largest index holdings, like banking giant HSBC, rose almost 20%, while oil majors Royal Dutch Shell and BP jumped 33% and 25% respectively.
Joe Biden has been assembling his economic team in preparation for taking office in January. Janet Yellen, who headed the Federal Reserve under Barack Obama, is tipped for the key role of Treasury Secretary. She is a well-known quantity, and as a long-term “dove” (supportive of economic stimulus) will go down well with Wall Street. For his budget director, Biden took a less establishment route and chose Neera Tanden, an outspoken progressive popular with Democratic activists, though she may struggle to get confirmed by the Republican-led senate.