Weekly Market Update
What a week! The market was expecting vaccine results sometime soon but the Pfizer/BioNTech result was much better than expected, with an indicated 90% effectiveness versus expectations for a 50-60% effective vaccine. For comparison, the flu vaccine generally has a 40-60% rate of effectiveness each year, whilst the measles vaccine had a 93% rate.
Good news so far but there are still many challenges ahead.
The issue then turns to the speed of manufacturing and distribution. At the currently expected rates, it may take years for the world to achieve herd immunity, and immunity may only last for a short period which could prove another challenge. Distribution is also an issue with this vaccine needing to be stored at extremely low temperatures. Furthermore, there could be potential long-term side-effects, which will not be known for years to come.
Other successful vaccines may be key as the Pfizer/BioNTech vaccine utilises fairly new technology, whilst older methods similar to flu vaccinations may prove to be effective as well. Such results would be particularly useful as there would already be a much larger manufacturing base to produce these types of vaccines. Even if the efficacy rate is lower, these could help the world reopen quicker.
Whilst there is still a lot of uncertainty around the health situation, the vaccine results have definitely provided a ray of hope, especially for the beaten down sectors of the market such as energy, travel and hospitality.
Market recap
Markets rose strongly on the vaccine news, with more cyclically exposed markets outperforming, with equities up over 5% in Europe. The S&P/ASX 200 also outperformed, posting a 3.7% gain versus the S&P 500’s 2.2% gain.
Market leadership rotated last week, away from the defensive and growth sectors of consumer staples, IT and healthcare to the worst performing areas year to date such as energy, financials and industrials. There remains a huge difference in performance between sectors though, therefore, it would not be surprising to see this trend continue for a prolonged period if other vaccine results remain encouraging and the recovery gains legs.
Final stretch of earnings season
The bulk of companies have gone through their trading updates and quarterly reports in Australia and globally. There are still a few left to report but for the most part, it has been a very encouraging earnings season, well above initial estimates.
Telstra (TLS) once again reaffirmed guidance but surged on the announcement that it will restructure into three entities – InfraCo Fixed, InfraCo Towers and ServeCo. Targeted to complete on Dec 2021, this would make it easier to spin off or sell these assets to unlock value and return capital to clients.
NextDC (NXT) posted guidance of $242-250 million in revenue and $125-130 million in income for the 2021 financial year, whilst management commented that they have seen a strong start to the financial year so far. This was largely in-line with expectations, with little reaction from the market.
James Hardie (JHX) continues its impressive momentum, with a strong update across all of its key markets as profit guidance of USD380-420 million for the financial year was provided, a strong 7.7-19% expected increase year on year. Given the strong results, JHX also announced that it would reinstate its dividend.
Commonwealth Bank (CBA) also posted a solid result and reinforced the trends that we have been seeing in the banking sector, with deferrals recovering strongly but net interest margins falling. CBA continues to boast superior performance over peers, with loan book growth nearly double the wider banking system and margins remaining well ahead of peers. However, this performance is also reflected in the price, with CBA trading around a 50% premium to peers.
The other big one was Wesfarmers (WES) which posted stronger than expected growth across the board, growing 29.3% excluding Melbourne and Auckland, where it had been impacted by government mandated temporary closures.
Although headlines have been dominated by the U.S. election and vaccine news, the strong earnings season has also helped push equities higher. There are still several stragglers due to provide updates over the next few weeks but focus will likely shift towards further vaccine results and more stimulus. The European Central Bank has already highlighted that it will provide more monetary stimulus measures at its next meeting, whilst U.S. fiscal stimulus remains up in the air post the election.
Looking ahead
| Monday | CN Fixed Asset Investment, CN Industrial Production, CN Retail Sales |
| Tuesday | |
| Wednesday | US Retail Sales, US Industrial Production, AU HIA New Home Sales, EU CPI |
| Thursday | AU Employment, US Building Permits, US Housing Starts |
| Friday | CN PBoC Prime Loan Rate |
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Tuesday 17 November 2020, 11am
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This information is general in nature and is provided by Bentleys Wealth Advisors. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decision based on this information.
