OCM Commentaries

Market Commentary 19th November 2020

By November 19, 2020 November 20th, 2020 No Comments

Vaccine News Improves the Outlook

Markets moved higher over the week, as economic, political, and pandemic uncertainty waned due to the improving outlook. Since the beginning of November, the UK and European markets have returned 13.57% and 13.24% respectively, whilst the Cboe Volatility index (VIX) has fallen over 40% over the same time period, suggesting investors are becoming more risk-seeking. A large driver of this shift in investor behaviour was the Pfizer vaccine announcement, which has been further substantiated this week by updates from Moderna and AstraZeneca. This week, Pfizer improved on their previous 90% efficacy with a 95% interim efficacy result, a day after the Moderna announcement of 94.5% efficacy. Alongside this, AstraZeneca has confirmed its vaccine has produced a strong immune response in older adults, with plans to announce their key findings in the coming weeks. The high efficacy levels are not the only positives, with both AstraZeneca’s and Moderna’s vaccine remaining stable at refrigerator temperatures for 30 days, as compared to Pfizer’s -70 degrees Celsius storage requirements. The positive news has improved optimism for nations who are currently battling peaking daily cases, which is expected to increase the risk-on signal to markets over the coming months.

The second wave of Covid-19 cases peaks globally

The positive vaccine news has come at a key time for pandemic-related worries. Worldwide, daily Covid-19 cases have peaked in November, remaining elevated since the November 7th record. On a regional basis, European nations appear to have moved past their peaks, with Europe’s lockdowns helping reduce pandemic transmission. If this data continues, daily cases could be considerably lower by the time Christmas arrives, potentially providing the opportunity for families to socialise and the economy to begin to operate again. Despite this, the US is facing a different trend. On Friday 13th US cases hit 181,000, and currently stand at 160,000, adding to a worrying outlook for the lagged data regarding deaths from the virus. Additionally, public concern is likely to rise as thanksgiving approaches on November 26th, which could result in further spikes. The reluctance by US states to follow Europe’s lead in enforcing lockdowns is weakening, as it appears states have no other choice but to begin tightening movement restrictions. As a result, the outlook for the US economic recovery may weaken in the short term as consumer demand wanes.

Bank of America announces its bearish US stance

Bank of America (BofA) has highlighted a generally bullish reaction to the US election and vaccine news as an opportunity to start selling US risk assets in its recent fund manager survey. After investor optimism jumped as a result of the Biden presidential victory and the vaccine announcements, the S&P 500 and the Dow Jones have hit their all-time highs shortly after experiencing the quickest recession on record. This comes alongside a peaking second wave of Covid-19 cases and an above average unemployment rate of 7.90%. Taking these factors into account, BofA strategists believe now could be a good time to take profit on US risk assets due to the elevated share prices and a potential topping process from other investors. Our outlook is broadly in line with this view, with the recently elevated US share prices providing a good opportunity to take profit and reduce our exposure to the assets that financial markets may rotate out of as the economic outlook improves.

Brexit negotiations

In the UK, it has again been reported that the UK and EU could strike a deal as early as next week as the two sides have edged closer to an agreement on the biggest sticking points. Irish Prime Minister Michael Martin has explained that both the UK and the EU can now see “the landing zones” around an accord, potentially making it easier to come to an agreement. Despite this, both Michael Barnier and David Frost have reiterated that talks could collapse if their negotiation partner does not compromise, further suggesting that the two sides are trying to get a deal which best aligns to their interests.

Come next Monday, talks will resume in London as officials hope to make a breakthrough early in the week and reach an agreement. That being said, if a deal has not been signed by the EU summit on December 10th, businesses must prepare for a messy British exit from the single market. Brexit uncertainty will continue to weigh on the minds of investors over the coming weeks, and a collapse in talks could result in a downside surprise to markets. The latest obstacle for the continuation of negotiations has been an EU official testing positive for coronavirus, which has caused a short suspension on agreeing a post-Brexit trade agreement. In the case of a favourable trade deal or one that meets current expectations, UK equities would receive a positive boost on a brightening medium-term outlook.

UK Q3 rebound delivers as government pushes green recovery

Between July to September, UK GDP expanded by 15.50%, in line with analyst expectations as the fastest increase on record. Despite this, growth slowed towards the end of the quarter, as September posted a 1.10% expansion in GDP, following 6.30% in July and 2.20% in August. This is largely due to pent-up demand waning, and an increase in daily Covid-19 cases towards the end of August. Taking this into account, along with the national lockdown that is currently imposed, Q4 GDP growth is expected to be slightly weaker for the UK, with short-term GDP not expected to expand significantly before the rollout of a vaccine. To combat expectations for economic weakness in the short term, policymakers recently announced fresh stimulus, with more fiscal stimulus expected to follow in early 2021.

For more information on the impact of recent fiscal stimulus and why we’re not concerned about current levels of borrowing in the UK, please see the attached Market Update.

This week, UK prime Minister Boris Johnson mapped out his plan to drive a medium-term green recovery that will tackle climate change. Johnson confirmed a £12 billion budget for green initiatives, ranging from offshore wind and clean energy sources to ending sales of new petrol and diesel cars by 2030. This has been regarded as one of the most ambitious green blueprints in Europe, as Johnson’s actions suggest he wants the UK to be a leader in green and clean energy. This news could provide a boost to ESG and green-based investment opportunities, which remain in their infancy but are becoming increasingly demanded by financial markets. Although this green transition will not be overnight, significant changes are expected over the next decade, which brings significant opportunities for investors.

Our positioning

The continued news flow from developments in phase 3 trials has helped to reduce uncertainty in the short-term, and financial markets have become more risk-on as a result. Although we believe profit taking is likely in US large caps, many of the globally discounted value stocks will become increasingly demanded, and we see little chance of this slowing over the next couple of months. Risks remain in the short term, with peaking virus cases in the US and Brexit talks in the UK providing some short-term volatility, however we continue to see positive momentum as we end 2020 and move into 2021. Overall, we are well positioned to navigate current levels of volatility whilst also benefitting from the sectorial rotation which is beginning to accelerate.

Key Events We Are Watching This Week:

  • Monday: Manufacturing and Services PMIs for November
  • Tuesday: French & German confidence indicators for November

For anyone who wants further data to substantiate the position please review the attached Economic Dataset.

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 over the week as markets rallied on positive vaccine developments and positive earnings surprises. 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, we have recovered from the March coronavirus decline, and we are in a strong position moving forward.


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 1850, Alfred Tennyson became British Poet Laureate, succeeding William Wordsworth.


Have a great week,


Jason & Gina