Investors should consider the risk of a successful coronavirus vaccine disrupting markets by causing bonds to sell off and spin off tech into cyclical stocks, warned Goldman Sachs Group Inc.
The increased likelihood of a vaccine approved by the end of November is undervalued by the stock markets and by then the outcome of the US election will be known, strategists including Kamakshya Trivedi wrote in a statement. note Wednesday. Investors will also know how back to school impacted the spread of the coronavirus, they said.
Approval of a vaccine could “challenge market assumptions on both cyclicality and perennially negative real rates,” the team wrote, adding that such a scenario could support longer yield curves. steep, traditional cyclicals and banks, while challenging the leadership of tech stocks.
If that happened with a change in US administration, emerging market equities could benefit “if trade policy risks decrease while US tax risks increase,” according to the note.
While strategists have suggested it may be too early for investors to aggressively position themselves for such a change, they have recommended options trading as a way to play the theme. For example, some call options on the S&P 500 still look attractive, and Goldman sees a rise of around 3,700 in the event of an early vaccine.
That compares to a potential target of a decline of 2,200 in the event of a significant reversal in activity from a second wave of the virus, the strategists added. The US benchmark closed just below 3,328 on Wednesday.
The Goldman team has been more direct in keeping its bearish view of the dollar.
“The range of results is wide and our greatest confidence remains in the current weakness of the US dollar,” they said.