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A 'continuation of good news' will keep markets trading higher: Strategist on Moderna's potential Covid-19 vaccine

Moderna said its coronavirus vaccine is 'highly effective' on Monday. Principal Global Investors Chief Strategist Seema Shah joins Yahoo Finance Live to weigh in on Moderna's successful news.

Video Transcript

- Seema, it's good to see you. So, as we see this trend here, how are you thinking about vaccine rollout? We've talked a lot about that it's going to take time and we know that the market is a discounting mechanism. Is it discounting it properly given that there still could be some hiccups here in the execution?

SEEMA SHAH: Yeah, absolutely. And I think that's key. You know, we saw such a positive reaction last week, which then petered out as investors started to take-- take account of all of those various question marks that still remain. So I expect to see, you know, as we see these kind of headlines that we've seen today, that you've get a very strong market response, which then after a few days, fade. We'll need to see a continuation of this kind of good news to keep this rotation going.

But I think that, look, you know, even if we take account of all of the various question marks that there are out there, next year still does look pretty strong, right? So not only do we have, of course, a vaccine, a potential vaccine in play. But we also have all the central banks providing endless liquidity, we have fiscal stimulus on the cards, and, of course, we have an economic recovery, which either way is going to be ongoing.

So I think that as investors look at this, there are a lot of reasons to have a cyclical-- pro-cyclical trade on. Is just a question of maybe maintaining some caution as you move into that.

- Seema, this is the second time in as many weeks we've seen these work from home stocks-- Zoom, Peleton-- time really get slammed on positive vaccine news. You think the market is just being too harsh here? I don't know about you, but I will still be using Zoom next year, I will still be burning thousands of calories on my Peleton bike even if I do eventually get a vaccine.

SEEMA SHAH: Yeah, absolutely. You know, I agree. I think a lot of the moves that we've seen this year are probably here to stay. People who spend a lot of money on technology this year because they've had to and they're not going to throw it away just because things may be looking back to normal.

So I think the key thing here is, so look, you know, when we look at the macro environment, we know that central banks are still in play. So we're still going to have bond yields pretty low. And this continues to play well for those tech companies. You know, if you're looking at ones where it should continue to do well-- look into the [INAUDIBLE] by [INAUDIBLE].

As we said before, there's still so many question marks around the vaccine that you still want to have those very strong players in your portfolios. But of course, you know, we shouldn't anticipate them to have the same kind of gains that they enjoyed in the first couple of quarters of this year.

- Seema, you mentioned monetary policies role in the current cycle, but that would bring the question to where does fiscal policy go from here? I mean, has there been, perhaps, enough positive news, at least thinking stateside here, that it gives maybe cover for politicians who didn't really have the political will to do another fiscal package, which of course, we've been discussing endlessly for months. And really, no progress has been made. And now, perhaps, no progress will.

SEEMA SHAH: Yeah, you know, I think coming into the election, for example, I don't think that we ever anticipated that there would be a fiscal stimulus announcement before the US election. So I think that was-- was not such a surprise to markets. I think there is some anticipation of a package next year, but I think what we've also learned over the last two months is actually the economy is somewhat more resilient than maybe was initially anticipated. The consumer has been so strong through all of this that actually-- and a smaller stimulus package it's fine. It's likely to be targeted. So these are less for concerned than the maybe would have been before.

- So, Seema, all of this said, it sounds like we're still kind of in the so-called Tina environment for stocks. There is no alternative that stocks are going to keep going up because investors are not really getting any bang for their buck elsewhere.

SEEMA SHAH: I think that's true to some extent. So, look, I think to us, equities look like they should certainly have positive gains for next year. There's a lot which is moving in their favor. I think there is still some space to play in within the credit. And the high yield, as long as you're looking at kind of-- the really good, quality pieces of high yield. Because look, we have to be aware that even though we're looking at recovery, even though we're looking at maybe a return to normal, a lot of these companies-- [CLEARS THROAT] sorry. --will have filled up on debt over the last couple of months.

So you need to be picking out the good ones. So there are some pockets within high yield that should do well. But, you know, don't forget real estate. There are parts of real estate which still have a lot of potential. Industrial, anything with regards to data, that should continue to do well, although, maybe, you ought to stay a little bit more cautious with regard to office space on the retail side, certainly, and with regards to companies, where they work.