Goldman forewarns that COVID-19 vaccine acceptance could capsize markets
The enhanced possibility of an approved vaccine by the end of November this year is under-valued by equity markets and by then the outcome of the US election will also be known, states Goldman.
Investors should even review the threat of a successful coronavirus vaccine disturbing markets by causing a sell-off in bonds and spin of out of technology into cyclical stocks, cautioned Goldman Sachs Group Inc.
The increased possibility of an approved vaccine by the end of November this year is marked-down by equity markets and by then the result of the U.S. election will also be out, wrote strategic thinkers involving Kamakshya Trivedi in a note Wednesday. Investors will even get to know how the beginning of the school year will have an effect on the spread of the coronavirus, they told.
Approval of a coronavirus vaccine could “challenge market assumptions both about cyclicality and about eternally negative real rates,” the team wrote, further adding that such a case may support steeper yield curves, conventional cyclical, and banks while challenging the direction of technology stocks.
If this took place together with a change in the U.S. administration, fresh market equities could profit “if trade policy risks diminish while U.S. tax risks rise,” in accordance with the note.
Although the strategists proposed that it may be too soon for investors to position themselves strenuously for such a change, they suggested options trades as a means to play the theme. For instance, some call options on the S&P 500 still look appealing, and Goldman sees upside to round the 3,700 level should there be an initial vaccine.
That in contrast with a potential downside goal of 2,200 should there be a considerable reversal of activity from a second wave of the virus, the strategists further added. On Wednesday, The U.S. benchmark concluded just under 3,328.
The Goldman team was more straightforward on maintaining its pessimistic view with regard to the dollar.
“The range of outcomes is wide and our highest confidence is still in ongoing U.S. dollar weakness,” the Goldman team added.