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The optimists have gained the upper hand on the stock market. A market-friendly US election outcome, encouraging vaccine news and ready central banks have significantly improved investor sentiment and led to a rotation from Covid-19 winners

(tech, gold, safe government bonds) to Covid-19 losers (value sectors, cyclical commodities). Equity funds have recently recorded the largest inflow ever measured over two weeks with more than USD 70 billion. The market seems to be looking

through the current expected growth dip and focusing on the synchronous economic recovery next year. USD 4.3 trillion…

Despite serious near-term risks, the overall balance of risks for 2021 is tilting to the upside courtesy of Joe Biden, vaccine hopes and some progress on European fiscal issues. Once the second wave of the pandemic has run its course, the growth outlook will likely be unusually positive for the European continent in 2021 and 2022.

Infection numbers are falling in major parts of continental Europe: After an almost exponential surge in recorded SARS-CoV-2 infections from early October until early November across continental Europe, case numbers have rolled over in some heavily affected countries and have started to stabilise in some others.

The Nobel laureates Eugene Fama and Kenneth French proved the existence of the “size” or “small cap” premium in 1993. The rationale behind the Fama-French three-factor model is that small caps – which we define as companies with a market

capitalisation of €500m to €5bn – are riskier and more illiquid than large companies. Small caps should, therefore, offer investors additional returns for taking on this risk. Other studies have shown that small caps generate an excess return in the long

term, even when adjusted for risk.

Last week, I took part in the European Central Bank’s annual “Forum on Central Banking”, this time held virtually rather than at Sintra.

The market-friendly outcome of the US elections and then the positive COVID-19 vaccine news made investors look for risk again. Both events led to a decrease in uncertainty and volatility. Share prices rose significantly.

After an almost exponential surge in recorded SARS-CoV-2 infections since early October across Europe, first signs of a potential turnaround are appearing in some heavily affected countries

After the trade turmoil of 2019 and the pandemic of 2020, 2021 could turn into an unusually good year for Europe. Four conditions required for such a positive scenario are now either within reach or could plausibly be met within a few months:

Joe Biden has won the presidency according to major US media. Whether the Republicans will defend their majority in the Senate depends on the outcome of two run-off votes in Georgia on 5 January.

Stock markets have responded to the US elections with relief. One reason for this, apart from the reduction of hedges, may have been that the election result (president Biden, divided Congress) essentially secures the status quo but with less political

tension. The tone in trade and foreign policy should become more diplomatic. Moreover, a majority in the Republican Senate is likely to limit significant changes in tax and spending policies.

Joe Biden wins the White House, Congress remains divided. This is now the most likely outcome of the US election.

A well judged upside surprise: Reacting to the shock from the second lockdown, the Bank of England (BoE) today announced additional stimulus to support medium-term growth and inflation expectations. The Bank decided to purchase slightly more additional assets than we and the market had expected (£150bn versus £100bn).

Compact outlook on capital markets, economics, stocks, bonds, commodities and currencies. New every month.

The Covid-19 crisis has recently worsened, particularly in Europe. In Asia, and above all in China, the situation looks much better. In the third quarter, the second-largest economy grew by 4.9 percent year on year. At the same time, Joe Biden was able to improve in the election polls over the last two months, even if his lead over Trump has recently declined slightly. One of the beneficiaries of this development were emerging market equities, which significantly outperformed developed market equities in the last four weeks, also driven by increased fund inflows. On the surface, not much has…

October has so far been much better than September; and the second half of October is even more positive for stock markets, at least historically speaking.

Volatility on the stock markets remains high. In September, the VIX volatility index for US equities remained above 25%. Looking ahead, the important developments are the US presidential election, vaccine news and the Q3 reporting season, which has already begun.

The volatility of equities has recently increased. The US Federal Reserve is maintaining its position and points out that fiscal policy should now provide impetus for the US economy. However, Democrats and Republicans cannot agree on a further stimulus package. A compromise before the US elections now seems increasingly unlikely. The so-called ‘superforecasters’ put the probability of a deal before the elections at less than 20%. In addition, they have moved their forecasts for a rapid vaccine approval and distribution slightly into the future. This, together with the increased COVID-19…