Election Mania In Times Of Covid-19

To add to this interesting mix from the Nov 3 elections, news on the vaccine front on Monday Nov 9, i.e. on the first week following the elections, will likely constitute a game changer. Pfizer Inc. and BiNTech SE reported their successful, over 90%, Covid-19 vaccine trial results. The news sparked optimism around the globe that there was at the end of the confinement and lockdowns tunnel. With Mr. Market being a buyer of the 12 month forward view, investors rushed to bid up the companies, mainly in the cyclical and small cap sectors by rotating away from the stay-at-home and work-at-home stocks that benefited from the pandemic, mainly tech stocks. Monday witnessed multiples of standard deviations in the momentum factor to the downside, led mainly by tech stocks, to the downside, as well as multiple standard deviations in the value factor to the upside, led mainly by the cyclical stocks. 

The above events and underlying currents can be visualized in one single image. The chart below highlights the evolution, post-election day, of select equity futures (ESZ0 = S&P500, RTYZ0 = Russell2000, NQZ0 = Nasdaq100), Gold (XAU) and the USD Index (DXY). Following the elections, from Nov 4-6, the markets gained, with Nasdaq100 outperforming, and the USD weakened as the risk-on took off. As the vaccine news hits on Nov 9, small caps Russell2000 took over while the Nasdaq100 tech stocks tumbled. The revival of the value/cyclical sectors led to gain in the USD and Gold tumbled.


For asset managers, risk management is asset management and markets are affected by many external factors, including those by policy makers. Now more than ever this is the case as governmental decisions result in economic stimulus that can make or break markets and in the world’s current case, cause them to develop an addiction that makes their use even more levied. The next administration will be responsible for cleaning up the economic mess that the COVID19 pandemic has caused, this means setting the fiscal and monetary policy that will either allow the countries of tomorrow to survive or thrive given the current state of affairs. The delicate situation as it stands now is at a tipping point between a possible lost decade or another era of expansion, as asset managers we must be able to predict and weather all outcomes.

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