• Can the rollout of a COVID vaccine be a sell the news event?
• Probably not, because central banks will continue to offer liquidity support for the foreseeable future
• Even after the pandemic ends, the liquidity created will remain in the system
We know economies will experience a burst of growth when the COVID pandemic ends. Partially because of pent-up demand, Partially due to an increase in productivity (gained during the pandemic), and lastly growth due to the return of sectors like hospitality.
However, with 93% of global economies struggling and markets at all-time highs, the question is, will the return to normality be a sell the news event?
The answer is we don’t know, however as we have said several times, higher equity valuations are also a product of the liquidity created by central banks. But please note this liquidity will not be taken out of the market. Mr Powel learned this the hard way, when a simple mention of unwinding the Fed’s balance sheet sent markets crashing back in late 2019.
As such, while we are vigilant of a sell the news COVID vaccine event, at the same time we find it difficult to see such a scenario. One the one hand liquidity support will continue for the foreseeable future, and even after the crisis ends, this liquidity will never be taken out of the market.
Having said that, a correction is always possible for a variety of reasons, simply because markets correct from time to time.
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