OCM Commentaries

Market Commentary 12th November 2020

By November 12, 2020 No Comments

Vaccine News Provides a Welcome Boost to Markets

With the chaos of the US election, last ditch Brexit negotiation efforts and a ramping up of lockdown restrictions all taking place since the beginning of November, it’s fair to say that financial markets have been exceptionally turbulent over the last two weeks. But while risks remain, data suggests that the exceptional levels of volatility observed in recent weeks may be coming to an end, with the Cboe Volatility Index (VIX) falling significantly in recent days as expectations for market gyrations ebb following the US election and news of a promising coronavirus vaccine. The VIX remains above its long term average amid risks surrounding the ongoing pandemic and questions over the transition of power in the US, however looking past the near term noise, the outlook is beginning to brighten, providing a clear risk-on signal to markets.


A Brightening Medium Term Outlook

On a global scale, daily coronavirus cases have increased significantly in recent months, such that the daily case count peaked on the 7th November at 661,000. The second wave of infection has provided renewed challenges for nations, with much of Europe now immersed in partial or national lockdowns. As a result, economic activity has been significantly disrupted, weighing on recovery expectations in the near term. But while near term weakness can be expected as virus cases constrain activity in the short term, vaccine developments delivered a huge boost to markets over the week, with investors looking towards a return to normality on renewed hopes for the rollout of an effective vaccine over 2021.

Stocks soared around the world after Pfizer and BioNTech’s interim analysis showed that their vaccine prevented more than 90% of Covid-19 infections, the most encouraging scientific advance so far and much more promising than the 60-70% scientists braced the world to expect at the beginning of the pandemic. As a result, risk assets performed strongly, with previously out-of-favour stocks posting strong returns over the week. Financial markets will be looking to further developments from Pfizer and its vaccine competitors in the coming months which could further improve the economic outlook.

For more information on Pfizer & BioNTech’s vaccine and the challenges still to come, please see the attached Market Update Document.

US Election Update


Following the chaos that was the US election last week, although the counting of votes continues in some states, the results now suggest that Joe Biden will become the 46th president of the United States. With Republicans likely to retain control of the Senate, it is expected that Biden will find enacting his tax and spending proposals difficult, removing the downside of increased taxes from our original scenario of a Biden victory without a Senate majority. Increased policy certainty, trade multilateralism and a pro-immigration stance should generally benefit the economy compared with the policy stance of the current administration, however they are unlikely to drastically modify its growth trajectory moving forward, with growth expectations remaining broadly unchanged. It remains our view that we will see further fiscal aid before the end of the year to counteract rising unemployment and slowing economic momentum in the near term as virus cases surge across the country.


In the week since the election, Donald Trump and his Republican allies have waged a public campaign to call the election results into question, initiating a number of legal challenges against the result and vote counting process in key battleground states which decided the result. But despite the President’s efforts to overturn the results, it has become increasingly clear over the week that he would need to get not one but many of the five Biden states with Republican legislatures to try to ignore the popular vote: a feat which few legal experts believe will ultimately affect the outcome of the race. That being said, Trump is unlikely to go down without a fight, and a non-peaceful transfer of power remains a risk which we continue to monitor closely.


In terms of our expectations for the new administration, President-elect Biden will likely attempt to put his stamp on policy in early 2021 through executive actions and lobbying efforts with moderate Republicans to pass some elements of his agenda, however the first step to achieving a sustainable recovery will come through a strong solution to the Covid-19 crisis… and this is where a vaccine comes in.


Brexit Negotiations Near Another Informal Deadline


In the UK, the government is intensifying talks with industry experts as it seeks to avert Brexit disruption at the end of the year as Brexit talks come down to the wire. Ministers are set to hold weekly meetings with the five biggest business groups and particularly vulnerable sectors to discuss Brexit preparations, with increasing concern over the lack of preparation for Brexit. Whether a deal is reached or not, firms are set to face a wave of new red tape and regulatory barriers on trade with the EU. Negotiations to reach a deal are expected to be extended beyond this weekend’s informal deadline and continue in Brussels next week, with Brexit uncertainty continuing to weigh on the growth outlook for the UK in 2021 and onwards.


Our Positioning


Over the week, developments on the vaccine and political fronts relieved some of the uncertainty in markets, as optimism over the rollout of a vaccine in the medium term combined with a supportive narrative from central banks and governments led markets higher. While it is clear that risks remain in the short term, we are encouraged by the developments surrounding the Pfizer and BioNTech vaccine, with further announcements on other promising candidates to follow before the end of the year. As a result, we continue to see positive momentum in markets and opportunities for upside surprise moving into 2021, and we are well positioned to benefit as the global economy recovers, with exposure to areas of the market which are expected to benefit most during this stage of the market cycle.

Key Events We Are Watching This Week:

  • Friday: Eurozone Q3 GDP
  • Monday: China Balance of Trade date for October
  • Tuesday: US Retail Sales for October

For anyone who wants further data to substantiate the position please review the attached Global Economic Update document.

Model Portfolios & Indices

Global stock markets continued to display high levels of volatility over the week as countries across the world battle with surging virus cases and political uncertainty. The portfolios gained strongly over the week as markets rallied on positive vaccine developments, rebounding following last week’s decline. Looking ahead, we are optimistic on the medium-term outlook from here, accepting further volatility in the near term, but confident in our positioning, with well diversified portfolios which have been designed to weather these challenging market conditions. Year to date, in comparison to the benchmarks, we have recovered from the March coronavirus decline, and we are in a strong position moving forward.



Important Information


Past performance cannot be used as a guide to future performance and the value of your investment will fall as well as rise in value.  You may not get back all of your investment and the final value of your investment will depend on the performance of your portfolio.  The actual performance of an individual client’s portfolio may differ due to different funds being used and being restricted in relation to certain asset allocations.  Performance figures quoted include fund manager charges but exclude adviser, discretionary, custodian and switch charges and trading spreads.  Unless stated, income is reinvested into the portfolio.  The information contained in in this document is for information purposes only.  It does not constitute advice or a recommendation or an offer or solicitation for investment.


This Day in History


On this day in 1984, it was announced by Chancellor Nigel Lawson that the pound note, after being in circulation for more than 150 years, would be phased out and replaced with the pound coin.


Have a great week,


Jason & Gina