• Euphoric stock markets rise
• Drip feeding money into the market is still sensible
• The UK’s cyclical market could start to shine
• Safe haven investors should take stock
Laith Khalaf, financial analyst at AJ Bell:
“It’s unthinkable that a piece of news could eclipse the result of a US presidential election, but Pfizer’s vaccine results have done just that. The stock market is experiencing a serious melt-up, and safe havens like gold and bonds have sold off.
“While the tremendous vaccine result is likely to underpin markets from here, investors shouldn’t be too gung-ho with their portfolios. Many stock prices have jumped in response to the news already, and so already reflect an improved outlook. Often the initial knee-jerk response of markets to big events, positive or negative, is an over-reaction which is tempered over time.
“The vaccine result clearly raises hopes that a return to normality is within touching distance, and while that is extremely positive for markets and businesses, we should be mindful that the economic impact of the pandemic is still being felt around the globe.
“Drip feeding money into the markets regularly remains a sensible course of action for investors, to take advantage of any dips, and to keep a lid on market risk in case of an unforeseen setback.
“Investors should also consider unloved areas of the market which may now start to recover. In particular the Footsie could stand to benefit as markets reappraise the prospects of the cyclical oil and financial stocks which make up such a large part of the index.
“By the same token some of the technology companies which have prospered during the pandemic may find their appeal waning. However there’s still a long way to go until the world returns to normal and in the meantime these digital businesses are servicing new audiences, picking up higher revenues, and potentially making new long term customers to boot.
“If the vaccine result heralds a new wave of risk taking in markets, safe havens like bonds and gold will fall behind. Safe haven assets still offer important diversification benefits and shouldn’t be discarded entirely, but their size in portfolios may have become bloated as the pandemic has unfolded, so it’s wise for investors to take stock.”
