The annual contest for America’s Best Restroom has crowned its 2020 winner: a public convenience in Bancroft Park, Colorado Springs. This year’s winner self-cleans after every 30 uses, and features touchless automatic toilet paper, soap, water dispensers and hand dryers.
US equities were flushed away last week while the rest of the world’s markets moved steadily higher. Asset class returns are below; with news of a second vaccine hitting the wire, those companies most impacted by the Covid-19 lockdowns saw their share prices rebound.
Figure 1: Asset class total returns in base currency
Source: Bloomberg, EQ Investors
Since the start of the outbreak, commentators – experts and journalists alike – have flip-flopped around when a vaccine should be expected. While the optimists posed a late-2020 breakthrough, they were derided by the pessimists who claimed it would take years to develop a vaccine. And even then, the pessimists were split around whether a vaccine would even be effective! And yet in fewer than 250 days since the World Health Organisation declared the Covid-19 outbreak a pandemic, US pharmaceutical giant Pfizer along with its partner BioNTech announced it had created a highly effective vaccine. Within a week, Moderna, newcomer to the US biotechnology scene, announced it had also developed a highly effective second vaccine. What’s more, unlike Pfizer’s vaccine that requires physical storage at temperatures around -70 degrees C (making transportation of the vaccine a nightmare scenario), Moderna’s vaccine can be stored at refrigerator temperatures for up to 30 days.
Thinking back to Q1 earnings in the US, there was one standout quote that has really stuck with us. CEO Satya Nadella delivered Microsoft’s quarterly earnings with the comment that “we’ve seen two years’ worth of digital transformation in two months.” This appears to have come true not just for software in Microsoft’s case, but in many aspects of our economy which may have notable implications in the years ahead. One such consequence has been those companies driving technological innovation (think of the likes of Amazon versus traditional brick-and-mortar retailers) have seen growth rates catapulted ahead as economic lockdowns have moved our lives online. So, how has this played out in markets?
Market strategists at Citigroup have sought to define two groups of stocks that have either benefited or suffered from the Covid-19 lockdown. We can think of these as the “Working-from-home winners” and the” Vaccine winners”. What is most stark about the charts below is that WFH winners have outperformed those companies most impacted by the Covid-19 crisis by over 100% in relative terms. And that’s even with the significant market rallies off the back of vaccine news that we’ve seen in recent weeks!
|Figure 2: While vaccine news has boosted those touted to benefit most from an end to the pandemic…
||Figure 3: Working-from-home winners have outperformed their more cyclical peers by over 100% in relative terms
|Source: Citigroup, EQ Investors
||Source: Citigroup, EQ Investors
Examples of these sorts of distortions are split well beyond just those directly impacted by Covid-19 as the charts above show. Value (cheap stocks) vs Growth (high growth), Europe vs US, small-caps vs large-caps, and cyclicals vs defensives; these are all examples of where the former has underperformed the latter over the last nine months due to Covid-19. Perhaps quite perversely, the risk now is that a vaccine roll-out could see markets fall. A move back to “normalisation” may mean winners from the pandemic could see their customer bases return to more traditional consumption habits. Thus, as investors seek to gain exposure to recovery stories, there is the potential of rotation in the market which could drive cyclicals, small-caps and Value to outperform. The question falls to this: how much has everyone’s consumption habits changed for good? Will you continue to buy your food shopping online, or will you return to the supermarkets?
STAT OF THE WEEK: 782,000 – the number of UK jobs lost since March 2020 (ONS).
DATA CORRECT AS AT: 20/11/2020
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