Coronavirus vaccine will topple Big Tech's stock market domination: Goldman Sachs

Big Tech is ‘fully valued’: Expert

The Gartman Letter editor and publisher Dennis Gartman, Payne Capital Management President Ryan Payne and Walser Wealth Management President Rebecca Walser discuss the coronavirus pandemic, housing and Big Tech.

A coronavirus vaccine will restore economic growth and break up the stock market's yearlong love affair with Big Tech, according to strategists at Goldman Sachs Group.

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A safe and effective vaccine would put the population on a fast track to herd immunity, and help restore much of the global output that was lost as a result of the COVID-19 pandemic.

The strategists expect the 6% growth in global GDP next year, something they say is not yet reflected in market pricing.

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“Global equity markets are on track for decent gains this year, but we do not think markets have yet priced in a robust cyclical recovery,” wrote a Goldman Sachs team led by Zach Pandl, co-head of global foreign exchange, rates and emerging markets strategy.

The benchmark S&P 500 has advanced 11% in 2020, but the gains have been narrow in scope. Mega-cap tech stocks Alphabet, Apple, Amazon, Facebook, Netflix and Tesla have gained approximately 40% this year while other stocks in the index are lower. Together, the stocks, excluding Tesla, make up about 20% of the index.

The rotation from growth to cyclical stocks has already gotten underway as that collection of mega-cap tech stocks has seen their market capitalizations fall 9.7% from their Sept. 2 peak to $7.64 trillion.

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News of a potential COVID-19 vaccine was the catalyst needed from a headline standpoint to get the rotation going, according to David Rosenberg, chief economist and strategist at Toronto-based Rosenberg Research.

He argues the rotation from cyclical-growth to defensive-value stocks “has more legs.” A further pullback to the pre-COVID-19 peak in those mega-cap tech names would result in a 22% drop from current levels, shaving off another $1.7 trillion of market value.

All of that money going into value stocks would boost the S&P 500 Value index by almost 10%.

“This is a trade, not a trend, and has a few more weeks, maybe months, left in it,” Rosenberg wrote.

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Growth stocks are those which have strong earnings growth and are expected to outperform the average company in their industry. Value stocks are those that are trading cheaply compared to their fundamentals.

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