What’s Going On Here?A coronavirus cure might make us immune to one of the most devastating pandemics the world’s ever seen, but a recent report by Goldman Sachs suggests it could also leave some investors feeling a little peaky. What Does This Mean?The pandemic’s been ushering investors toward the relative safety of bonds, as well as to big US tech stocks that have benefited from global lockdowns. But Goldman’s now warned that once a vaccine eliminates coronavirus worries, investors might actually ditch those assets. In bonds’ case, that’s because a vaccine that drives economic growth, inflation, and, eventually, a rise in interest rates will reduce the relative value of their fixed payments. Tech stocks, meanwhile, mightn’t look as attractive as the “cyclical” stocks that stand to benefit more from an economic recovery. Why Should I Care?For you personally: Keep your options open.
Investors may be reluctant to prepare for a “rotation” that might never actually happen, which is why Goldman’s analysts recommended they hedge their bets using options. For a small upfront fee, you can purchase the right to buy or sell stocks at a pre-agreed cost when they hit a certain “strike” price. So you could buy a “call” (i.e. the right to buy stocks) with a higher strike price than currently, as well as a separate “put” (i.e. the right to sell) at a lower strike price than currently. That should allow you to benefit whether shares keep rising or drop significantly.
The bigger picture: Person, man, woman, trade war, taxes.
Another spanner in the works could be November’s US election: if the Democrats win big – which investors think is likely – Goldman reckons the risk of a trade war will fall and the risk of higher taxes will rise (tweet this). That could benefit emerging markets’ stocks – though given how uncertain they can be, options might help there too. | 