Over the last few months, we have seen an incredible recovery in major North American stock indexes, largely driven by the tech sector where we have seen companies like Apple, Amazon and Shopify hit record highs. To a certain degree the movement makes sense as the work from home movement has created opportunities for highly adaptive businesses or those that were already well equipped for a quarantine situation such as Amazon and Shopify. But what will happen if the trend suddenly shifts and the reason behind rocket trajectory of these businesses runs out of fuel? What happens if and when a vaccine is approved?
Recently, Goldman Sachs put out a report stating that investors should begin to consider what will happen in this scenario as they see that there is potential for a vaccine to unsettle this market. I personally believe that this is something that most investors are not considering but rather just expect that a vaccine will be good news and will help to carry their investments higher. This is likely true for some holdings but for those investors who have high concentration in companies which participated in the Covid rally, there may be a surprise coming. From Goldman’s point of view, they see that a vaccine could start a sell-off out of bonds and a rotation out of technology stocks into more cyclical businesses, companies that make or sell more discretionary items or services that would come into demand as an economy performs well. Cyclical businesses would include restaurants, hotel chains, furniture, high end retailers, automobile manufacturers, among others.
Given the potential risks, just how likely are we to see an approved vaccine over the next year? Back in June, consulting firm “Good Judgement”, did a study and determined that the likelihood of having a vaccine being broadly available to the public by March of 2021 sat at about a 10% chance. Since that time, the company has revised that study and based on the number of vaccines currently in trial along with the amount of money being poured into research, they have now placed chances at about 40%. 1According to Goldman, this is enough of a chance that it warranted the report over considerations that investors should be making. Goldman stated that “there is a good chance that at least one vaccine will be FDA-approved by the end of November and broadly distributed by mid-2021.” So more generally speaking, what does this mean for investors today? 
I believe that it is too early for investors to aggressively position themselves for such a potential shift despite what studies are showing. Certainly, the chances have improved that we will have a viable vaccine but it is also worth noting that even in these positive cases we are still looking at only about a 40% chance of wide distribution over the next 8-12 months. With that in mind, there are certainly a great number of investors who have become over concentrated in assets which have increased significantly in value and it may be worthwhile looking at rebalancing into certain areas which have not appreciated as quickly. There may be a lot of unknowns still remaining about this economic recovery, but something that is consistent throughout history is that when markets see large increases in value, undoubtedly a large number of investors over extend themselves and are caught holding the bag when the market turns. Whether or not you want to speculate on how quickly a vaccine might be available, at this time a wise course of action would be to evaluate your asset allocation.
-Grant White, CIM®, CFP®
Grant White is a Portfolio Manager/Investment Advisor at Endeavour Wealth Management with Industrial Alliance Securities Inc, an award-winning office as recognized by the Carson Group. Together with his partners he provides comprehensive wealth management planning for business owners, professionals and individual families.
This information has been prepared by Grant White who is a Portfolio Manager for Industrial Alliance Securities Inc. (iA Securities) and does not necessarily reflect the opinion of iA Securities. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Manager can open accounts only in the provinces in which they are registered.
1https://www.bloomberg.com/news/articles/2020-08-06/goldman-says-time-to-think-about-a-shift-in-market-leadership?sref=peGs5S5S  https://www.cnbc.com/2020/08/06/goldman-the-market-is-underestimates-the-odds-of-a-fast-covid-vaccine.html?&qsearchterm=goldman