Global investors were cautiously optimistic on Friday as they weighed the worsening coronavirus pandemic against hopes for potential vaccines.

Wall Street advanced on Friday with the S&P 500 up 1 per cent by early afternoon, rebounding from its losses in the previous session as energy and financials outperformed, while technology stocks trailed. The gains left the blue-chip index on track for its second consecutive weekly gain.

The Nasdaq Composite gained 0.7 per cent, and is on track to post a weekly gain despite a sell-off earlier this week when investors shifted away from highly priced tech stocks following a Covid vaccine breakthrough to more economically sensitive companies.

Travel stocks climbed on Friday with Delta Air Lines, United Airlines and cruise operators Carnival and Norwegian all up at least 5 per cent.

The gains in US equities this week accompanied a surge of inflows to stock funds. Investors added $32bn to US stock funds in the week to Wednesday, the second-largest weekly commitment in at least two decades, according to data provider EPFR.

“Equity markets are going to be looking through [short-term headwinds] to the vaccine with quite a lot of confidence,” said John Vail, chief global strategist at Nikko Asset Management. “Unless [the virus] mutates in a way that really negates the vaccine, then I can see risk assets going up.”

Monday’s announcement from Pfizer and Germany’s BioNTech of strong results from a late-stage trial of their Covid-19 vaccine fuelled a furious rally in many assets, even as global coronavirus cases and deaths continued to soar. But investors’ appetite for risk reversed course in the middle of the week, as the reality of the worsening pandemic sank in and analysts warned that manufacturing and distributing vaccines at scale would take time.

Line chart of % change, rebased showing Tech stocks faltered on the vaccine breakthrough

“Immunising most of the world’s population could prove logistically challenging, especially in light of widespread scepticism about the safety of the vaccine,” said analysts at BCA Research.

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Ed Raymond, head of portfolio management for the UK at Swiss private bank Julius Baer, said the big moves earlier in the week were “technical”, driven by short-term trading. But a rotation into “the more beaten-up areas of the market” such as financial stocks was likely to continue over the longer term, he added.

As the pandemic has worsened, national and local governments have reimposed or tightened social restrictions put in place to slow the virus’s spread. France has moved to extend its nationwide lockdown. In the US three West Coast states — California, Oregon and Washington — have advised residents to self-quarantine after travelling out-of-state, while Chicago has issued a 30-day stay-at-home advisory.

After switching between losses and gains in the morning session, Europe’s Stoxx 600 index closed flat, while London’s FTSE 100 closed down 0.4 per cent. Despite losing ground on Thursday, both benchmarks ended the week sharply higher.

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Brent crude, the international benchmark that has rallied this week on hopes that a Covid-19 vaccine would provide a boost to economic demand, fell 1.4 per cent to below $43 a barrel on Friday afternoon. Gold, commonly used as a haven asset, rose 0.7 per cent to $1,889 a troy ounce.

Investors appeared to overlook an unexpected decline in US consumer sentiment in early November as Americans took a less favourable view of future economic prospects amid a resurgence in coronavirus cases and a drop in the Expectations Index among Republicans after the presidential election. They also continued to voice concerns over political risks in the US, given President Donald Trump’s legal challenges to the result of last week’s election, which he lost to Joe Biden, the Democratic candidate.

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“The political impasse in the US adds another worry,” said Padhraic Garvey, regional head of research for the Americas at ING. “As many had feared, the administration’s main focus in the wake of the elections no longer appears to be on getting a new stimulus package across the line or even stepping up efforts to tackle surging Covid numbers.”

Analysts had hoped that a second stimulus programme would be approved before the election, and have raised concerns that the lack of further fiscal support will stymie the economic recovery.

But Nadège Dufossé, head of cross-asset strategy at Candriam, said investors had been reassured by the relative calm in spite of sustained political uncertainty.

“What will drive markets in the coming weeks is the news flow around the pandemic,” she added. “You will have up days and down days, but . . . if you think you will have an efficient vaccine next year, I think investors will continue to buy every correction.”

In Asia, equities fell after Mr Trump signed an executive order prohibiting US investors from holding shares in companies linked to China’s military. China’s CSI 300 index slipped 1.1 per cent and Japan’s Topix slid 1.3 per cent.

Via Financial Times