[Good Morning Stock Market] US Stock Market... Declines Amid Lockdown Concerns Despite COVID-19 Vaccine

"Polarization Between Individual Stocks Will Widen"

[Image source=AP Yonhap News]

[Asia Economy Reporter Minwoo Lee] Despite Pfizer's positive announcement of the final clinical trial results for its novel coronavirus disease (COVID-19) vaccine, the U.S. stock market closed lower. Individual stocks such as Tesla rose, but concerns over a sharp increase in bankruptcies among U.S. companies in the third quarter and school closures appeared to weigh heavily.

◆Sangyoung Seo, Kiwoom Securities Researcher= On the 18th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average, S&P 500, and Nasdaq indices closed down by -1.16%, -1.16%, and -0.82%, respectively. Despite Pfizer's positive final clinical results for its COVID-19 vaccine, the market closed lower. Pfizer, together with Germany's BioNTech, analyzed 170 confirmed cases among clinical trial subjects and announced a 95% efficacy rate. However, unlike the time when the initial clinical data was released, the impact was limited. In fact, Pfizer and others gave back some of their earlier gains. Later in the session, the World Health Organization (WHO) announced that vaccines are not yet available and that more efforts are needed to control COVID-19, and New York City implemented school closures. This triggered profit-taking sales under the pretext of COVID-19 spread, widening the indices' losses. Particularly, the news of a surge in bankruptcies in the third quarter expanded the sell-off, mainly in financial stocks.

Meanwhile, Federal Reserve officials including John Williams described the vaccine news as optimistic, suggesting it could raise expectations for economic recovery. They also claimed that the economy is improving faster than expected, led by housing and durable goods. However, they noted that without additional stimulus measures, the economy could slow down within a few months. Although this did not significantly drive market changes, it acted as a factor for a rebound. Additionally, Morgan Stanley raised its investment rating and target price for Tesla, leading to about a 10% increase. Notably, the target price was set at $540, higher than the current stock price. Other individual stocks such as GM showed large fluctuations, but most stocks were in a process of digesting sell orders.

The domestic stock market is also expected to undergo a process of digesting sell orders due to the rapid increase in COVID-19 confirmed cases. Recently, the market has been rapidly shifting to a stock-specific market as positive vaccine data and the surge in COVID-19 collide. Earlier this month, most issues were viewed as positive, leading to strong gains, but recently, profit-taking desires have increased, focusing on individual stocks. In fact, stock markets worldwide, including the U.S., China, and Europe, are showing extreme divergence in stock movements. Moreover, these changes are not continuous but vary day by day. In this process, the domestic market is expected to continue a stock-specific market amid digesting sell orders related to ▲COVID-19 surge and vaccines ▲Tesla effect ▲NVIDIA earnings results.

◆Yesin Lee, Shinhan Financial Investment Researcher= If the initial phase of reflecting expectations for COVID-19 treatments and vaccine development has concluded, the remaining variables will be judgments on the policy gap and changes in economic momentum. Although briefly overshadowed by news of COVID-19 treatments and vaccines, the market continues to rely on policy. Therefore, if concerns about a policy gap are confirmed through economic indicators, a short-term slowdown in upward momentum is inevitable. Recent market changes indicate increasing dependence on policy.

Capital concentration and short-term overheating are expected to enter a temporary lull until policy momentum is reaffirmed. The fortunate point is that the power of liquidity remains effective. In November, the global liquidity risk index entered negative territory for the first time since last March. This means that funding stress in the global financial market is very low. Along with this, the emerging market liquidity index, which gauges liquidity inflows into emerging markets, has recovered to pre-year levels. Amid limited liquidity risk, inflows into risky assets are being confirmed.

Considering external variables and co-movement with global assets, a short-term pause may occur. However, thereafter, the liquidity environment and solid fundamentals are expected to support further gains in the domestic stock market.