North American markets, viewed several hours before opening at 9:30 a.m. EST, appear poised to prove again the ongoing volatility of the investment environment with renewed optimism flowing from the vaccine news and developments in Washington. Major indicators are in the green at time of writing.
However, the DOW and the S&P 500 are only barely in the green in the pre-market hours and it is within the realm of possibility that they will slip into the red before or during market opening. That would make for a mixed beginning to the trading day.
European markets are already open at time of writing and most major indicators there are also in the green, cheered by the vaccine news and the easing of lockdowns.
That follows yesterday’s heart-pounding market action as the DOW broke through 30,000 for the first time, driven by the vaccine news and the formal beginning of the transition of President-elect Joe Biden to the White House.
The news had a striking contradiction for the second day in a row as major vaccine stocks performed well below what many would have expected. AstraZeneca plc, whose reports of their vaccine triggered the rally that began on Monday closed at $53.57, down $1.13 on the day. Moderna Inc. closed at $98.56, down $2.47 on the day and Pfizer Inc., whose announcement triggered the rally that began last Monday, closed at $36.60, up $0.08 on the day, after losing ground and dropping $0.18 on the previous day.
The explanation may lie in geography says Jay Nash, Senior Vice President at National Bank Financial in London. “It is possible that the news out of Russia that their vaccine will be made available for under $20 per dose is weighing on the sector,” he says, referring to reports that Russia was planning to export quantities of its own vaccine.. “This could imply reduced profitability (for the companies mentioned here).”
What this contradiction produces is a situation in which the equity markets continue to be driven by a “vaccine theme”, but the actual vaccine stocks come under pressure and get pushed down.
This seemingly weird situation provides a textbook example of the combination of volatility induced by the unexpected.
The other driver of market optimism, President Donald Trump’s decision to allow President-elect Joe Biden to begin the transition to the Oval Office, merged with the stature of Biden’s cabinet picks including former Federal Reserve Board Chair Janet Yellen as Treasury Secretary to reassure markets, analysts and investors that the Washington universe will unfold in an orderly fashion.
The effect of the move was clear and quick, according to Joshua Mahony Senior Market Analyst at IG Group, a London stock brokerage. “Donald Trump may have reminded us of just how impressive the Dow’s break through 30,000 is” he says. “Yet it was arguably his decision to allow the transition towards a Biden presidency which has paved the way for such market gains.”
That being the case, investors can be forgiven for stock-taking and surmising about what is to come after Biden and his wife Jill take the traditional inaugural walk down Pennsylvania Avenue on January 20.
The new administration will have an impact on all sectors, but will have a particular focus on environmental issues, explains Dan Ives, Managing Director of Equity Research at Wedbush Securities in New York.
“We believe one of the core underpinnings of the Biden platform will be around pushing clean energy and zero-emissions vehicles with hopes of accelerating the deployment of electric vehicles and public charging outlets by 2030,” he says.
Ives says that the path to increased demand for electric vehicles is restoration of the electric vehicle tax credit and believes that the Biden administration will provide more credits and incentives for electric vehicles.
He draws an ambitious picture, of “… our expectations are that more than $200 billion of Capex, factory build outs, distribution, and R&D will be spent over the next 5 years on EV vehicles by auto stalwarts (General Motors, Ford, Tesla, am others) along with pure plays.”
If Ives’ projections are correct, they have obvious implications for investors in these companies. An extremely complex question to be faced here is whether to invest in pure environmental plays or one of the legacy stalwarts. I will tackle that in a future edition.
Disclosure: I do not own shares in any company mentioned in this column.