U.S. stocks are once again set to move cautiously higher at the start of the week despite a lack of progress over a new stimulus package.
U.S. stock futures pointed higher, despite a new $1.8 trillion White House coronavirus financial aid bill offer being met with opposition from both Senate Republicans and House Democrats on Saturday.
Coronavirus cases continue to rise in the U.S., with Sunday being the fourth consecutive day with more than 50,000 daily infections, according to Johns Hopkins University. Efforts to develop treatments and a vaccine are building pace behind the scenes, but have gone under the radar in recent weeks with the U.S. election on the horizon.
In our call of the day, UBS strategists led by Bhanu Baweja said the vaccine trade wasn’t over yet and had room to run.
Vaccine hopes accounted for just 4% of the S&P 500’s 20% rise over the past five months, the bank’s global strategy team said in a note late last week, with liquidity and increased mobility accounting for the rest. They inferred that vaccine hope was only 55-60% priced in, based on how much of a drag current limited levels of mobility in society was still having on the market.
“Given that an approved vaccine should (eventually) help lift mobility to normal, the cumulative drag from mobility from February of 4% could be used as a proxy for further gains that can accrue from a vaccine,” they said.
In an earlier note at the end of September, UBS strategists said it was time to position for a vaccine approval.
“While mobility and economic data will improve slowly even after a vaccine is approved, market returns will very likely be front loaded. This will be a tactical, one-off rise in the market, we believe, and the time to position for this is now.”
They recommended positioning tactically in the cyclical sectors and called for a one-to-three-month spell of rotation away from the U.S., particularly to emerging market equities. When it comes to sectors the bank said there was additional scope for rotating into cyclicals, including leisure, automobiles, beverages, housing and airlines.
This article originally appeared on MarketWatch.
