Why the Economy Is in for a Boost When Vaccine Takes Effect

Despite the volatility we’ve seen this year, 2021 could see a major economic boost from the second quarter if the vaccines end up being effective. 

Why the Economy Is in for a Boost When Vaccine Takes Effect 

The uncertainty over the economy and stock market that began back in February and March with the onset of the first wave of Covid-19 in the United States has returned with the latest wave of the pandemic. While day trading is affected by short-term changes in market dynamics, the current uncertainty and volatility have the potential to affect long-term approaches as well. The pandemic is expected to be eradicated when the vaccine finally gets to the people.      

Why Successful Vaccines Would Boost the Economy in 2021

Effective vaccines could give a major boost to the economy in 2021’s second quarter, according to David Rosenberg, a major investment strategist. He, and many other analysts believe that any factor that would take away the Covid danger could only benefit the economy. Anything that grabs people’s attention away from the pandemic could make them engage in their regular activities, such as working, hanging out, investing in products and services, and thereby boosting the economy. 

Rosenberg believes that working from home isn’t necessarily bad because people are increasingly finding the arrangement productive. 

  • It therefore doesn’t affect performance. More and more employers would therefore allow this. 
  • So, even if the work-from-home arrangement continues, which, in all likelihood, it would for some time, businesses and organizations would maintain or increase their productivity. 
  • While that would cut short on travel, an impression of normalcy and the pandemic threat passing away would lead people to spend more since businesses aren’t losing productivity despite the work-from-home arrangement. 
  • A successful vaccine also takes away the fear factor for people. 

The Success Factor of the Vaccines

With the number of cases rising, nearly a billion doses need to be manufactured. That’s a lot more than the initial samples made. The challenge lies not just in the manufacture, but also the supply, delivery and storage. That poses a huge logistical challenge. And there’s also the danger of whether the virus could mutate into something else, in which case the current vaccine wouldn’t be effective. As of now, though, the efficacy level is high and in the current state of the virus, the vaccine may succeed in sparking an economic boom in 2021. 

The experimental Covid-19 vaccine candidate jointly developed by Astrazeneca and the University of Oxford has reportedly delivered 90% efficacy in late-stage trials. Pfizer ($PFE) and partner BioNTech ($BNTX) have reported potential cures too with their vaccine, while Moderna ($MRNA) has also reported high efficacy levels. The markets have reacted positively to the news, starting the week from November 23 — 26 with a rally. Rosenberg expects inoculations to begin in 2021’s first quarter. If so, he expects the second quarter to witness a massive boom. 

These are aspects you need to consider while trading stocks online, when you are strategizing for 2021 and beyond. 

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Why Robotics & IoT Sectors Stand out in the Current Political Situation

Robotics and IoT are particularly relevant for American companies looking to shift manufacturing operations back to the US.

Why Robotics & IoT Sectors Stand out in the Current Political Situation

The months from February were dominated by the perceived effects of the Covid-19 pandemic. In online stock trading, investment decisions all revolved around combating the effects of the pandemic. As the lockdown eased and the economy reopened in the United States, the focus expanded to political events, particularly the trade and political tensions between the US and China.

Political Uncertainty Could Shift Operations Back Home

There is much uncertainty surrounding China’s trade conflict with the US, which has caused companies in the manufacturing field to think about moving their operations back to American shores. Tariffs for imported Chinese goods have risen and has made sourcing raw materials from China more expensive. Besides, there are significant disruptions in the supply chain caused by Covid-19. Therefore, companies would need to source raw materials and manufacture locally.

It was also reported by Motley Fool back in May that President Trump was looking for ways to direct back supply chains to the United States and away from China. The US government could provide incentives for bringing manufacturing back to American shores.

Robotics and IoT

If that were to happen, there are some companies that would particularly benefit. Analyst Lee Samaha points out some of them:

● Robotics company Rockwell Automation ($ROK) could hugely benefit from the simple fact that manufacturing plants in the US would need the services of Rockwell to set up the automation systems at their factories. Automated systems could help companies ensure cost-effective manufacturing to countries like the US with a high wage cost.

● While there are other bigger automation companies, Rockwell has a significant presence in North America. The continent has contributed to 61% of the company’s Q2 sales. The Covid-19 pandemic has affected the company, but with the manufacturing shift, you could soon see its best days. However, at $8.67 per share, it is trading 25 times its earnings in 2019. It is expected to continue at that level at least until fiscal 2022.

● Rockwell is in partnership with IoT company PTC ($PTC). As important as automation hardware is the software and digital technology powering the hardware. The Internet of Things (IoT) or connected tech is an essential part of automation technology. PTC is a leader in industrial software.

● There is a great deal of interest in PTC’s IoT and augmented reality solutions that help businesses manage their assets better. The importance of IoT and augmented reality is further realized in the era of Covid-19. PTC’s augmented reality solutions enable factory equipment to be checked and inspected even without the specialist being at the site.

These are two key industries that could play a major part in the months to come. The demand for all industrial services and infrastructure is bound to increase when many American manufacturers decide to shift their operations back home. As things stand, the government favors such a shift. But you still need to be watching the news to understand how the dynamics of US-China relations keep evolving.

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Stock Market Rally

Can You Count on the Stock Market Keeping Its Rally Going? 

Investors always look for the light at the end of the tunnel. It’s no different this time, with the lull the months of March and early April have witnessed as a result of Covid-19 coronavirus. While it is essential to look for the next big investing opportunity, even when there seems to be none around, you also need to be careful you don’t jump the gun. 

Since March, the Market Is on a Roll

After the coronavirus pandemic, the market did experience flashes of growth despite the overall bearish volatility. But since March 23, the S&P 500 has grown around 25%. There has been a continuous debate about how sustainable these gains can be, as a result of the Covid-19 fallout. Even the Nasdaq Composite is in the year-to-date (YTD) lead. Is this an indication that the bad times are past?

Not to Get Drawn Away by the Rebound 

According to prominent strategist Sophie Huynh, as quoted by MarketWatch, investors really shouldn’t be drawing too much from this since the rebound has been mainly surrounding the healthcare, staples and technology sectors. What’s characteristic about these sectors is that they benefit from an environment of low interest rates and kind monetary policies. The current work-from-home situation has also contributed to their growth. These influences aren’t exactly sustainable. 

The upside is limited now, Huynh reckons. She is waiting for a rebound concerning industrial, energy and discretionary stocks. These are stocks that really reflect economic growth recovery more than the other stocks. A total “risk off” is still some way off, she reckons. Currently she doesn’t see any sign of capitulation when compared to 2008 levels, but some of the risk-off has settled in.  

Unemployment Figures Keep Rising

As per reliable data, the total number of individuals who have filed for unemployment in the US is 25 million, when including the 4.4 million who have recently filed for unemployment. The Markit PMI services and manufacturing indexes have dropped, while sales of new homes have also sunk 15%.

Domino’s Pizza, Target and Eli Lilly 

As for the current situation, Domino’s Pizza ($DPZ) missed its same-store sales estimates. The company’s shares slumped 2% in premarket trading on last Thursday after the pizza chain reported first-quarter profit and revenue that rose above expectations but saw reduced U.S same-store sales. However, Target ($TGT) experienced an increase in online sales while pharmaceutical company Eli Lilly ($LLY) also reported earnings growth.  The shares of Eli Lilly rallied 1.5% during premarket trading Thursday – the drug maker had reported better-than-expected first-quarter profit and revenue and also provided an outlook for the full year, which was consistent with the forecasts. They witnessed revenue boost by an estimated $250 million due to increased customer buying patterns related to the COVID–19 pandemic.

Uncertainty for Target?

But there is still uncertainty for Target as it experienced big sales swings. The shift in shopping trends during the pandemic is the primary reason. In fact, the shopping trend shift has been from physical and online stores to only online. That has affected Target’s earnings, making it less profitable. So, the uncertainty continues for the period past the first quarter. 

On April 23, Target released a business update containing valuable information for investors as well as those following the broader retail sector. 

  • Their quarter-to-date comparable sales are up 7% though comps have reduced slightly in stores and digital sales have more than doubled. 
  • For the first few weeks of April, digital sales surged 275% whereas social distancing measures resulted in in-store comparable sales to fall by the mid-teens. 

The company noted that it has increased market share across all of its core merchandise categories. Nevertheless, changes in supply chain to cope with the rise in digital sales and higher wages and bonuses for staff have added up to incremental costs. Investments and expenses and the shift to lower-margin products like food and beverage as well as inventory write-downs for unsold apparel and accessories may lead to the company’s operating margin for the first quarter to fall by more than 5% points from the previous year. This is a threat to its quarterly profit caused by an operating margin of less than 1.4% compared to 6.4% the previous year. However, the company’s CEO reassures that even though the present crisis will put near-term pressure on their profitability, that pressure is far outweighed by doing right by their team and their guests. He said they were confident the actions they were taking at present will drive growth and greater guest affinity over the long term.

The market may give weight to factors such as reduced in-store sales for Target, uncertainty regarding the return of customers in full numbers to their stores, and the shift to lower margin online shopping. This could keep Target’s stock value uncertain, at least for now.

As a stock trader, you can find growth opportunities in the current situation. But it’s still too early to make any investment plan under the notion that we’re out of the woods. We still need more time to find that out for sure. Keep your eyes on the industrial and energy sectors. But with advanced direct access trading platforms offered by online broker dealers, you can easily get started in stock trading.        

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