It’s still an election, twenty new COVID policy measures, and a Christmas dinner away, but its worth trying to anticipate what equities will look like as the clock strikes midnight on New Year’s Eve. And, here are three factors to consider.
The Christmas COVID Crunch
Despite the police commissioner’s misguided tough guy comments about breaking up gatherings in breach of COVID rules, it seems almost inevitable that families across the Western world will come together to celebrate Christmas. And, with this in mind, we can make the assumption that the days following Christmas will be filled with headlines fretting about spikes in cases.
Of course, the extent to which this comes to pass will be influenced by the lockdown measures in place over the festive period. However, many Twitter users in the UK and US have been vocal about their intentions to see loved ones, regardless of official restrictions. Should this be the case, we can expect further downside for Western equities. Politicians may be keen to avoid stringent lockdown measures over Christmas, but this might require tougher measures before – and, importantly – after the holiday period.
While new lockdown measures between now and Christmas are already being priced in by shaky indexes this week, the severity of new case numbers will have a hand in steering the range of restrictions in place as we enter the New Year.
Equities will love the duck no longer being lame
In a roundabout way: the new US president will stop being a lame duck in January. Save for the nightmare outcome of a close result in the presidential election next week, the next US president will be inaugurated in January. At present, bookies have three likely outcomes – a Democrat clean sweep, a Biden win but mixed legislature, and a Trump win with mixed legislature.
Now, both candidates look likely to implement a new stimulus package once they take office, and whoever is in power will normally drop some breadcrumbs about what new support measures will look like ahead of time. Certainly, there have been reports saying that markets have priced in a Biden win next Tuesday, and such an outcome would likely result in more generous stimulus being introduced in the New Year.
While markets would rub their hands eagerly at such a prospect, they’ll recoil in disgust at his new taxation policy plan. Trump will implement more modest stimulus, and thus the excitement for new support, while present, while be more muted. In contrast, Biden will likely bring in more extensive support, but – and despite BlackRock debunking some of the practical fears being raised – the giddy sentiment this incites will to some extent be cancelled out by equities pricing in heavier taxation.
New Year, new hope
Perhaps the variable offering the strongest potential upside is the ultimate light at the end of the tunnel: a vaccine. With status updates being posted this week on the potential efficacy of the Oxford-AstraZeneca vaccine candidate, and Pfizer flexing the muscles of its vast vaccine roll-out logistics operations, any hope of there being an end in sight should have been rekindled.
Indeed, just today, GSK and Sanofi announced a joint Statement of Intent to supply 200 million doses of its vaccine to the COVAX initiative, once approval has been received. Regarding a timeframe for these promising words to become reality, GSK hopes to achieve regulatory approval within the first half of 2021, and their effort doesn’t even seem to be the current front-runner. With that in mind, we may be on the brink of a vaccine candidate being made publicly available in the early stages of 2021 – or at least, that’s what’s currently being alluded to.
Failing this, we’ll no doubt have more sweet nothings to sate our appetite for good news. And, if nothing else, some promising updates at the turn of the New Year may be enough to leave equities in a good mood.
Hogma-nay or Hogma-yay?
I’m opinionated but not an oracle, and I won’t give you a clear answer I’ll regret at a later date. What I will say, though, is that you take time off over the holiday period at your peril. Even with just the three themes we’ve discussed, family arguments around the dinner table are unlikely to be the main sites of drama as the year draws to a close.