There have been three main uncertainties in investment markets in recent months and they all came to a head in the past few weeks. Coronavirus, the US Election and Brexit. These issues led investment markets to initially fall, then recover and rise even faster as they developed as a result of renewed optimism.
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Covid woes
Throughout October, the daily number of new coronavirus cases was rising across Europe and markets had reacted negatively to this news amid uncertainty surrounding what measures would be introduced to control the resurgent outbreak. With mass testing now available, unlike during the initial wave, case numbers were at record levels and this saw countries reintroduce strict lockdown measures to curb the virus.
We know that markets prefer certainty and although the news might not have been good, the measures taken brought some clarity which was a relief for investors. As a result, markets rose in the UK and Europe while the US was more subdued as it moved towards its presidential election.
Impact of the US election
From an investment perspective, the worst case scenario of an unclear or contested result did not occur.
Investment markets, particularly in the US, reacted positively to the news of their new president-elect. This optimism was driven by the promise of policy direction to manage coronavirus in the US and that crucial fiscal support for the economy would be delivered.
Notwithstanding legal challenges, investment markets also feel more confident knowing the general direction of policy over the coming years from a Biden presidency.
Vaccine hope
The start of November saw the much hoped for positive announcement from US pharmaceutical giant Pfizer that a Covid-19 vaccine they are developing was 90% effective in protecting against the virus. This announcement saw UK and European stock markets surge over 5% on the day the news came out.
This was followed soon after with a 95% effective vaccine from Moderna that had a similarly positive, if more muted, impact on markets as the Pfizer announcement. With a vaccine to counter the virus, markets are hopeful that life could return to normal and economies can reopen freely at some point. With some of this long-term uncertainty being removed it further fuelled optimism in investment markets and drove US stock markets to record highs.
These developments are very positive, but it does not mean normal life can resume immediately. Until a vaccine is approved and rolled out, markets will still be impacted by short-term management of the virus. The vaccine offers us a map to guide us out of the woods, but markets must still consider how long we might still be in them and what impact this will have on businesses, the economy, and the people within them.
Of the three main uncertainties in investment markets, this month we have found answers to two of them. Joe Biden will be the 46th president of the United States and multiple promising vaccines are in development to combat Covid-19. Two down, one to go.
Invitation
If you would like to discuss anything in this update, please contact your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England. Note that the information in this market update represents the views of the Investment Managers at Vesta Wealth Limited at the time of writing, which may change.
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This content is for information purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.