International investment firm EXANTE’s CEO Alexey Kirienko has said that he expects the FTSE100 could suffer further in the next few weeks as optimism about the COVID-19 vaccine dies down.
The situation with the FTSE index is still uncertain. As the index reached a local maximum in mid-June at 6490, it started to dip in the following months, getting as low as 5540 by late October (-15%). However, during the first half of November the index had been growing rapidly and has nearly returned to its mid-June level. The lockdown on November 5 only led to a minor adjustment of the index, and the growth resumed immediately afterward.”
He adds: “But, things could get much worse in the next few weeks. The UK was badly hurt this spring due to the poorly timed quarantine. People are now concerned with both the virus spreading and the crisis getting worse due to the lockdown. It is also possible that by December the optimism caused by the news of the vaccines will die down, and people will once again realise that the country is still in a serious crisis, or rather still hasn’t recovered from the previous one. The lockdown is likely to continue and will only end when the population is at least partially vaccinated. It is still too early to predict the value of the FTSE by then, but right now the index is rather high.”
Tesla’s stock prices as a result of joining S&P500 may not last long
“To put it bluntly, Tesla remains barely profitable, which is why it was not included in the S&P500 index in September. However, after third quarter results were more promising, the Index Committee decided to give Tesla a chance, even if the company remains overvalued. Many companies are overvalued during their growth period, which is what already happened with the IT giants. Still, investors must keep in mind that the rise in Tesla’s stock prices due to the company joining the S&P 500 may not last long, and serious crashes are still possible in the future,” adds Mr Kirienko.
Unloved stocks making a comeback?
Mr Kirienko says: “Last week saw a redistribution of capital from the IT giants to traditional businesses that suffered during the crisis, which is uncharacteristic of the current situation. The Dow Jones index, which has experienced a serious dip this year, has risen by 4.1% last week, while the star of this year – the Nasdaq Composite index – has instead fallen by 0.6%.”
“Even more telling is the situation with the stocks of the tourism and transportation companies, such as Carnival. This company’s stock prices dropped by a factor of 6 in February and March, though later they partially regained their value. Immediately before the news of the vaccine by Pfizer and BioNTech came, Carnival’s shares cost $13.82, and on the day of the news their price rose to $18.03 (+30%). Right now the company is still holding onto this gain,” says Mr Kirienko.
“Currently it seems that this rise in stock prices for the companies that previously suffered from the crisis is not just a momentary reaction to the good news, but rather a result of a careful analysis of the economy’s prospects. In the next few months people will begin to be vaccinated. Even if new lockdowns are going to be imposed across the globe, they are unlikely to last long. In the past few days it was reported that Moderna’s vaccine is going to show even more promising results than Pfizer-BioNTech’s. This means that the bet on the recovery of the industries affected by the crisis is a perfectly realistic approach and not due to short-lived hype. By the way, before the crisis Carnival’s shares cost $51, so the current estimate of $18 can hardly be called overly optimistic,” he concludes.