Tech stock has been a key driver of the bullish momentum in the stock market. With the tech-laden NASDAQ trading at all-time highs, strategists at Goldman Sachs believe a coronavirus vaccine could unsettle the market rally.
Coronavirus Vaccine Impact
For the longest time, stocks have shrugged the COVID-19 pandemic, powering to record highs. The analysts fear that the potential impact of a coronavirus is highly underpriced. According to Kamakshya Trivedi, a coronavirus vaccine could challenge market sentiments, especially on the prospects of eternal negative real rates waning.
A coronavirus vaccine coupled by a change of U.LS administration could see the focus shifting from U.S equities to emerging market equities. Likewise, steeper yield curves could come calling on focus shifting to bonds and treasuries.
According to the strategist, a coronavirus vaccine could result in investors rotating their portfolios from tech stocks that have continued to edge higher amid the pandemic. The investment focus is likely to shift to cyclical stocks, most of which have taken a significant hit amid the epidemic.
Read More: Impact of Coronavirus on Global Economy
S&P 500 Outlook
The S&P 500 could end up being the biggest beneficiary on investors rotating from tech stocks into cyclical stocks. The strategist in a research note noted that the Index could rally by as much as 11% as a result.
However, the Goldman strategists have warned that it might be too early to start positioning investment portfolios for a market shift. The best way to play the new theme would involve switching to options trades given that call options on the S&P 500 look attractive.
While a coronavirus vaccine as early as November could help propel the S&P 500 above the 3,700 level, a lack of it could come with its fair share of repercussions. A second wave of coronavirus infections is already taking a toll on the U.S economy. There are already fears that a significant reversal of activity on the second wave could see the S&P 500 plunging below the 2,200 level.