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Widespread distribution of a safe and effective Covid-19 vaccine next year is poised to be a game changer for markets, and Wall Street is trying to get ahead of the curve.
What’s happening: Investors aren’t just preparing for a rally in US stocks that came under pressure during the thick of the pandemic. They’re also gearing up for a rotation into emerging market assets as a result of higher growth. Goldman Sachs thinks that oil prices — which have plunged in 2020 on weak demand for fuel — could climb back up above $65 per barrel by late 2021.
“The outlook for the oil market could start to look better in [the second half of 2021],” Morgan Stanley strategists told clients this week. “By then, Covid-19 vaccines should allow a more meaningful recovery in mobility and transportation.”
In its November survey of fund managers, Bank of America found that investors expect emerging markets, gold and oil, along with the S&P 500, to be the top performers next year as a new economic cycle kicks off.
But not all assets are poised to thrive. Take the US dollar, a traditional safe haven asset that benefited early in the pandemic from skyrocketing investor anxiety. It’s now down 10% since March against a basket of other top currencies, and is expected to stay weak as the economic outlook improves.
“A recovering global economy and heightened focus on US indebtedness are likely to reduce demand for the currency,” UBS strategists told clients this week. The dollar also used to benefit from US interest rates being higher than in other countries — but that edge has now “eroded,” UBS noted.
The outlook is also mixed for gold prices, one of the best performing assets this year. The metal tends to benefit from a weaker dollar and it’s a popular hedge when interest rates are low. At the same time, a preference for risk-taking over safety could present a disadvantage.
Watch this space: Many investors aren’t ready to take the plunge just yet. The short-term outlook still looks difficult as coronavirus infections in many big economies continue to rise. Markets were spooked on Wednesday after New York City announced that it would once again close schools as cases climb.
“While vaccine news is a long-term positive, we prefer a defensive posture in the coming weeks,” Jim O’Sullivan, chief US macro strategist at TD Ameritrade, told clients.
But those taking a longer view are urging investors to look past a difficult winter.
“Rising Covid-19 cases are a risk, but keep the faith,” Morgan Stanley said in its report. “We think this global recovery is sustainable, synchronous and supported by policy, following much of the ‘normal’ post-recession playbook.”
Apple to slash App Store fees as pressure mounts
Apple is cutting the fees it charges app developers as antitrust pressure on the iPhone maker grows.
Details, details: The company said Wednesday that commission on app store sales will drop from 30% to 15% if developers made less than $1 million in the prior year, my CNN Business colleague Brian Fung reports. The change will go into effect on Jan. 1. Apps that earn more than $1 million a year will keep operating under Apple’s existing fee structure.
It was not immediately clear how many small app developers will be affected by the change, but it could be a substantial number. Apple’s announcement said that the update will benefit “the vast majority of developers” on the App Store.
More than 97% of iOS app publishers tracked by app metrics firm Sensor Tower generate less than $1 million a year in app-based consumer spending. Those developers’ economic activity accounted for an estimated 5% of the iOS App Store’s total revenues in 2019, Sensor Tower told CNN Business.
Big picture: The App Store has increasingly come under scrutiny as lawmakers and regulators have zeroed in on Apple’s market clout. Leading members of the House Judiciary Committee found in a landmark report this fall that Apple, Amazon, Facebook and Google enjoy “monopoly power” that they’ve wielded in anti-competitive ways.
Apple’s treatment of app developers has been criticized as helping to preserve the company’s dominance. This summer, Epic Games, the maker of the hit game Fortnite, filed an antitrust lawsuit against Apple that could reshape how app stores work in the United States. This week, Epic expanded its litigation against Apple to Australia.
“Just the specter of antitrust action creates market structure change,” Matt Stoller, director of research at the American Economic Liberties Project, tweeted Wednesday.
Boeing’s 737 Max can fly again. Its problems aren’t over
After 20 months, Boeing’s 737 Max jet has received approval from US regulators to return to the skies.
Remember: The plane, which had been Boeing’s best-selling jet, was grounded in March 2019 after two fatal crashes that killed 346 people. It was later discovered that a safety feature meant to stop the plane from climbing too fast and stalling had improperly forced the nose of the plane down.
The process of allowing the plane to once again carry passengers stretched on far longer than expected and cost Boeing more than $20 billion, according to the company. Lost orders during that time make it among the most expensive corporate blunders ever, my CNN Business colleague Chris Isidore reports.
The go-ahead in the United States is the first step in allowing 59 airlines spread across 32 countries to once again fly the grounded planes. Regulators in other countries still need to get on board.
But even once Boeing’s 737 Max is completely cleared, America’s largest exporter won’t be out of the woods. The aviation industry is still grappling with a massive downturn due to the pandemic, as lower demand for flights forces cash-strapped carriers to hold off on buying new planes.
Know this stat: Boeing has fielded 460 canceled orders this year, and now classifies another 846 as too uncertain to be officially counted.
The company’s shares rose in early trading Wednesday, but finished the day 3% lower as Covid-19 anxiety resurfaced. They’re down 38% this year.
Initial claims for unemployment benefits in the United States are expected to have dropped to 707,000 last week. That would be the lowest level since mid-March.
Also today: EU leaders meet by videoconference to discuss the bloc’s budget through 2027, as Hungary and Poland threaten to hold up approval. Europe’s big stimulus package to fight pandemic fallout is also on the line.