Last week, investor sentiment swayed towards optimism despite the existing balance of “negative” and “positive” in the financial markets. They have decided to focus only on positive news, which led to the growth of the stock markets and the dollar’s weakening.
What caused this market behavior?
The main topic last week was the news of successful trials of a COVID-19 vaccine from Pfizer and BioNTech, which has poured so much enthusiasm and optimism into the markets that, despite the high volatility, stock indices managed to pull up to recent highs, the dollar fell. All this happened against the background of the absence of official recognition of Joe Biden’s victory in the presidential race and the beginning of legal proceedings.
But the markets ignored this fact, believing that in any case, the Democrats will “squeeze out” Trump with the help of the controlled media and public liberal sentiments from the White House. Besides, investors believe that they will benefit more from Joe Biden’s presidency than under Trump. Markets hope that Biden’s policy will lead to the US economy’s recovery and stimulate the assets value growth, primarily companies’ shares.
The new week begins with the continuation of such sentiments in the markets, which is reflected in the growth of stock indices and futures contracts on American and European stock indices during the Asian trading session. However, the Asian market has slightly different reasons for growth – the process of concluding a large-scale trade deal between the countries of the region, with China as the center of the process. This topic and the news described above clearly fit into the general outline of investors’ unwillingness to look at the reports of COVID-19 cases. They believe that the production of vaccines and the mass vaccination of Western countries’ populations will help to return to the way of life before 2020. Only time will tell if that happens, but as long as investors believe in this, stock indices will creep up, and the dollar will weaken, losing ground due to demand for protective assets.
Thoughts and conclusions:
Despite the investors’ desire to believe in the best, there is still more than enough negative. The number of COVID-19 cases grows daily, litigation following the results of the presidential elections in America is in progress, and the vaccine’s mass production is yet to start. All that, in my opinion, will contribute to maintaining a high level of volatility this week.