Large Cap Growth Fueled by Accelerated Demand for Tech Services and Race for a Vaccine

The outperformance of large cap growth stocks has actually been going on for the past decade, which makes them hard to dismount since we are likely to eventually return to the slow 2-2.5% pre-pandemic economic growth rate of the past 10 years. By pulling forward years of increased demand for digitization and online technology services during the pandemic, growth stocks now appear to be priced near perfection while trading at extreme levels relative to value stocks. At the same time, a few key fundamental factors are falling into place that could broaden out the recovery in 2021. In June, we penciled in a COVID vaccine for 2020 as a potential long shot, and we favored large cap growth stocks. Since then several medical advances in development have been announced on virus treatments, testing, and then for the ultimate trifecta, better than even odds for a vaccine. There is a real possibility that a COVID vaccine receives FDA approval for at least emergency usage in 2020, and then broader distribution to global populations during the second and third quarter of 2021. There are currently over 100 vaccine candidates in development, including more than 30 in clinical trials, and three leading contenders that are likely to announce their phase three results before the end of the year. While complexities with distribution are likely even if a vaccine were approved, news of a successful vaccine could have a profound positive impact on the financial market’s cyclical growth outlook, boost the lagging equity market sectors, and further steepen the bond market curve.