Vaccine brings FOMO (fear of multiples overstretched)

Local market was aimless and volatile all day before ending slightly positive. We were catching up from yesterday’s ASX shutdown after the first 30 minutes. US market has had multiple days of vaccine related bounce when the upside is the same and delayed. The Moderna vaccine is better for transport logistics than Pfizer but the initial data sets being used for massive efficacy are misleading. It is hard to justify a global vaccine solution based on less than 100 sample out of 30,000. The vaccine is probably one of the better vaccines and there will be more trial results in the next few weeks. The efficacy will probably fall to around 70-80% with full set of data and that is still very good. But the main problem is that production will only cover US by mid-2021 and that is assuming they can get the polarized country to take it. Recent trend and self-serving politics suggest there will be 10-20% that will not take it and hence break the theory of eradicating the virus. We still do not know how long the vaccine gives protection and if 10-20% do not take it and then bring new waves, we may need more vaccine to cover US than previously planned. Looking outside US, worldwide coverage on production and transport logistics is likely to take to the end of 2021 at best but more likely into early 2022 for most of the Emerging Markets.

US politics has also ramped up. Trump administration is ramping up election uncertainties while collecting donations for legal fights that they are dropping in major states. Covid pandemic is hitting historical high levels in cases and hospitalisation which is forcing even Republican Governors to start basic restrictions in several states. Given the lack of US Federal leadership and election uncertainty, expect these restrictions to rise to higher level in the next month as numbers get worse. Trump administration has been quoted in the media for (1) looking at options to attack Iran and then walking away on collateral risk (2) looking at more China related trade/investment restrictions (3) Middle East policy changes (4) delaying election results being confirmed (5) stopping government agencies working with Biden transition team. Not expecting the uncertainty and volatility to subside anytime soon!!!

DotCom was the last time we had such exuberance and market multiples. If history is any indicator of future performance, Russell relative performance to S&P 500 hitting positive territory was the trigger point for NASDAQ to start the big underperformance cycle against S&P 500. We may be closer to that scenario than we think…buckle up!!!

Overnight US market moved higher on another vaccine hopeful from Moderna despite historically high COVID cases and hospitalization. Efficacy rates will come down with more data but Moderna vaccine is easier on logistics than Pfizer as it can be stored in normal fridges and freezers. May be why Pfizer management dumped big chunk of their shares on their update before this update came out. Bond yields bounced on inflation outlook and growth to value switch continues. Russell is the best performer while NASDAQ is the laggard. US$ remains weak and supported higher commodities...AUDUSD now over 73 cents. Gold was steady. All sectors except Health Care were in the green with Energy and Industrials leading...moving from high growth to cyclical growth. Trump camp continues to argue against election results, collecting donations and dropping lawsuits about election in number of states. Biden camp talking about $10-50k student loan forgiveness via executive orders. Bond market flagging Inflation. Last thing an asset bubble based on stimulus needs is a vaccine. Economy and Markets have different wants and needs!!!

Remain nimble, contrarian and cautiously pragmatic with elevated global macro risks!!! Buckle up...it’s going to get bumpy!!!

Not already a Livewire member?

Sign up today to get free access to investment ideas and strategies from Australia’s leading investors.