Since the market bottomed on March 23, the S&P 500 has rallied 49% while the Nasdaq is up more than 55%.
And with the S&P 500 now within 1% of a record high, strategists have been writing quite a bit about the next catalyst to keep stocks pushing higher.
And the most common answer seems to be a vaccine.
“[We] are all hoping for 12 months not 10 years and six vaccine candidates [are] in large-scale phase three trials, with some already entering mass production,” Woodard notes. “Financial assets are not priced for a ‘return to normal’ in 2021 and the risk worth considering is that an early vaccine could spark a significant tactical rotation out of deflationary defensives and into cyclical sectors.”
And while it’s only been a few-days-long trend, stock market action since late last week has been consistent with investors pricing in something like this possibility.
“In our upside scenario [for the stock market],” said Mark Haefele, chief investment officer for global wealth management at UBS, “we think a combination of earlier-than-expected vaccine availability, increased fiscal stimulus, status quo in US-China relations, and an outcome to the US presidential election that does not lead to a material increase in corporate tax rates or regulation would lead to equity risk premia falling below pre-pandemic levels.”
In this outcome, Haefele expects the S&P 500 would trade at 3,700 at the end of 2Q21, and adds that “Our preferred investments for this scenario would include select cyclicals and value stocks, and companies exposed to themes accelerated by the pandemic (such as digital transformation). We would also expect further dollar weakness.”
In an email on Tuesday, Nicholas Colas, co-founder at DataTrek Research, also discussed the role a vaccine could play in the market going forward. Colas writes that if he were forced to say what moves stock prices in a single word, the answer would be “surprise.”
“Since ‘Surprise’ is the word of the day, we need to parse what fundamental factors make for earnings surprises from here,” Colas writes. “The easy part: the US economy needs to continue improving. That means we need further fiscal stimulus ASAP and an effective COVID vaccine in the next 6-9 months.”