Vaccine tailwind to Biden rally

Editorial | Mary Ma 10 Nov 2020

Pfizer's announcement yesterday that a vaccine under development was 90 percent effective in preventing Covid-19 infections gave markets a major shot in the arm.

And Joe Biden's claim of election victory has given Wall Street and global markets a new script to play with - a notion conveniently plucked out of nowhere.

The Dow Jones Index, for example, had been on a plateau before the election, and its dive began about two weeks ahead of the vote. Curiously, the correction from above the 28,000 level to the recent low of slightly above 26,000 reversed direction on the eve of the highly contentious vote.

Needless to say, what happened next has been like a rocket-style surge to land back on the moon.

The rally began on the Monday - one day before the election - when many were still doubtful if Biden could win the election in light of enthusiastic turnouts at Donald Trump's campaign rallies.

Comments attributing this week's rally to Biden's victory were little more than hindsight, handily taking up a readily available observation to justify what had already occurred. Had the stock markets been so predictable, would everybody have become millionaires? And who were the losers?

Market direction is always led by large capital players. Retail investors may follow the trend, but they have to be able to resist temptation - and know where to stop and when to leave. But resisting temptation is often easier said than done.

While uncertainty over the vote might be cited to explain the market dive in the days leading up to the election, this sense of uncertainty had also been played up and maximized by the smart money ready to hit the jackpot in a market fall.

What goes up must come down - perhaps it was as simple as that.

Remember those stern warnings that the financial markets would fall in the event of a Biden victory because of his election pledge to drastically increase taxes? Those key words have now either been replaced or are missing.

Amid the surges here and elsewhere, bearish positions previously built on a Biden victory were quickly neutralized.

US stocks led the global charge this time around - they are now back on the plateau with both bullish and bearish positions eliminated in the fall and rise. The golden word here is "caution."

Hopes are reportedly high on the prospect that, with the election over, the US will roll out a new stimulus package fairly soon.

This could well be the case - if, and only if, the Democrats manage to win control of the Senate. But, as of now, that is still a big uncertainty.

In the event of greater stimulus, the US dollar will remain weak.

Investors love hearing stories. The prospect of more stimulus is a new story so narrated to raise market indexes further before they are battered back by bad news of a split congress.

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