European markets suffer with Covid cases on the rise

Thanksgiving celebrations fail to extend to Europe, with stocks pulling back after as Covid continues to hurt economic prospects. Meanwhile, the value story starts to come under the microscope given recent gains.

European markets suffer as short-term fears dominate
Value stocks struggle amid cloudy economic outlook
Vaccine optimism only goes so far, with Covid cases on the rise

In the absence of a cheery US disposition, we have seen European markets flounder somewhat as ongoing questions over the forthcoming economic difficulties overshadowed optimism over future recovery prospects. The outperformance in the more internationally focused FTSE 100 over the FTSE 250 highlights growing fears over the direction of travel for the UK economy. Weakness across banking and airline stocks highlight the fear that the UK will continue to struggle in its bid to get back to normality despite the recent vaccine optimism that has permeated through markets. Undoubtedly value stocks has plenty of upside to come, yet we could be at a point where investors will be left wondering just how long they have to wait until they can judge that actual recovery for themselves.

While markets have largely been willing to overlook any dour data points in anticipation of a vaccine-fuelled recovery next year, the incessant rise in coronavirus cases does provide a sticking point for market sentiment. While traders have been willing to overlook short-term weakness in favour of future growth, we do need to see signs that recent lockdown measures are making a tangible difference to the trajectory of the virus. With Angela Merkel warning that the German partial lockdown would last until at least 20 December (and potentially January), the economic cost is swiftly racking up. In the US, record high cases in Texas and California were joined by a seven-month high in New York cases after they topped 7,000 a day. While many have cheered the prospect of a less divisive approach from Joe Biden, there is also a fear that he could hurt the US economy by enacting a nationwide lockdown after taking office.

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