It must go down as one of the worst-timed piece of broker’s comments in history: a research note from Citi on Monday morning which warned that we might yet only be at the beginning of the Covid depression. “A vaccine or other cure that could permanently control the pandemic is possible,” it read, “but this could take years, widening the range of possible economic paths further. Huge losses can snowball – Our illustrative scenarios suggest GDP might still be more than 10 per cent below 2019 levels in two years’ time. Cumulative losses over this period could be 14-33 per cent of 2019 GDP for the Eurozone and 20-43 per cent for the UK.”
We now know what happened next. A press release was put out announcing that the vaccine being developed by Pfizer and BionNTech was 90 per cent effective. Markets, which had already been perky in apparent reaction to Joe Biden’s victory in the US Presidential election – or at least in reaction to a definite outcome – soared, with the FTSE 100 recording one of its biggest-ever daily gains, of five per cent. Had you sold – or worse, shorted – the shares of corporate victims like Rolls Royce on the strength of the Citi note, you would be left feeling especially sore: Rolls shares increased by over 60 per cent in 24 hours as investors dared to imagine a time when the world returns to flying.
Not that the vaccine has quite repaired the aerospace industry, or many of the other industries which have been hollowed out by the pandemic. Rolls Royce shares are still down 60 percent in 12 months. Ocado, by contrast, the online grocer which has profited from lockdown, slumped 15 per cent on Monday – but it is still 78 per cent up in 12 months. The drama was really just a minor adjustment in the overall narrative of 2020.
Still, it does illustrate very well the perils of trying to time the market and to read a fast-moving situation like a pandemic. For the past few weeks the news on Covid 19 has been pretty relentlessly negative. Europe, which seemed to have emerged from its spring lockdowns, has been plunged back into the darkness, with people once more confined to their homes. No-one was to know how quickly the mood was to change with the vaccine announcement. The news could equally well have been the other way around: with a press release saying the vaccine had only proved 40 per cent effective – below the level at which it was receive approval from, for example, the US Food and Drug Administration (FDA).
Indeed, there is nothing to say that there will not be a negative follow-up. The Citi scenario could yet turn out to be right. Monday’s announcement only covered the efficacy of the Pfizer drug; what hasn’t yet been released is data relating to the safety of the drug. As the health secretary Matt Hancock warned on this week, it cannot be taken as a given that this drug will go on to be licensed – it could yet fail when the full results of the phase 3 trials are announced. Moreover, even if it is rolled out over the next few months we could find that it fails to scotch the pandemic – that, say, the strain found among Danish mink is unaffected by it.
If you want to try day-trading shares on the back of judgements on what you think might be the path of the pandemic, fine, but be prepared for plenty of agonising moments as the news turns against you. A wiser course, as always, is to choose a balanced spread of investments and stick with them through market turbulence. That can be agonising enough – though history suggests you should be alright in the end.