Current week is ending with a new vaccine announcement, this time from Moderna, whose vaccine managed to achieve an incredible 95% effectiveness. Later in the week, Pfizer announced that the final metrics showed that its vaccine was 95% effective.
The battle of vaccines continues because, as the companies themselves have stated, one vaccine is not enough for the timely vaccination of the population and therefore the more vaccines are released, the higher their production will be. In the coming days, in addition to the official approval of the Authorities that is expected for the vaccines of Pfizer and Moderna, we expect new vaccine announcements from other pharmaceutical companies, which are already in the last stage of their testing process.
As it is already known, after the official approval of the Authorities, the distribution of the vaccines will start immediately with Europe and America having already reserved, through deals, their own quantities. Community immunity through vaccination is the next step for the global economy to return to its economic reality and for catastrophic lockdowns to cease being a choice for governments.
On the other hand, as tourism and related services account for a significant proportion of global GDP, it is vital that this year's tourist season returns to normality. To restart trips, to reactivate hotel reservations. If this cannot be ensured to a great extent, the financial shock of a second "dead" tourist season will be enormous and will inflict multiple blows on the global economy.
Last days’ metrics show that there is a stabilization of the number of new cases. These may remain high, but local lockdowns seem to have already started to pay off. In addition, more and more tests are performed day by day, so it is normal for new cases to be maintained at higher levels compared to the first wave of the pandemic. In the chart below, data from Eurozone and America are encouraging.
What do markets discount? Will the stock rotation go on?
The announcement of the vaccines was an opportunity to open positions in more cyclical sectors of the economy, which had been hit hard by the pandemic. It is no coincidence that the announcement of Pfizer vaccine on November 9th was the reason for Dow Jones to hit positive ground for 2020, since until then could not gain buying momentum.
In the last days, however, Nasdaq keeps on leading the market, since the sharp increase of cases in America makes a lockdown comeback quite visible. In such a case, technology stocks have an edge.
The above is not the only reason. Black Friday, Cyber Monday, Thanksgiving and the festive Christmas period in general, are expected to make both sales and Nasdaq’s stocks earnings soar. Investors bet on both a strong sales growth and earnings growth for the last quarter of 2020, but it seems that this is only one side of the coin.
The other side of the coin has to do with a sharp reversal of earnings estimates per share for index S&P 500 for 2020 and 2021. And these estimates could change if vaccination proceeds rapidly and within the first quarter of 2021, so that the economy returns to intense and unstoppable production rates.
On April S&P 500 earnings per share estimates were $155/share since analysts could not project how long it could take to return to normality. Now, it is estimated that S&P 500 earnings per share for 2020 will be $168,38, which means 3,9% higher than 2019. And in the best case scenario for 2021, earnings per share are expected to reach $185/share. This development is gradually discounted by investors. The chart below shows that S&P 500 earnings yield is at its lowest level since 2002 and this indicates that the markets could perform very well in the coming years.
One of the most interesting findings of recent weeks is the strong outperformance of Russell 2000 stocks. Given the huge liquidity and the general support framework from the government and the Fed, lower capitalization raises significant chances for a good investment year in 2021. Finally, regarding the question whether to exit the technological sector, the answer is simple: the vaccine gives the opportunity for a safer choice of some cyclical sectors in order to have a balance in the investment portfolio. But Nasdaq's position in the investment portfolio remains strong, as economic developments in the coming years will be sweeping.
For instance: Amazon announced that is about to step into the pharmacy market, attempting to gain market share from the industry leader, CVS. How many could have predicted this move? How much can Amazon gain from the market share? What impact will it have on its capitalization? Can CVS compete with Amazon's logistics network? This is the future of technology.