Covid-19 vaccines could be imminent! How I think this affects the UK stock market

News of Covid-19 vaccines is boosting investor sentiment! I think snapping up cheap shares in the UK stock market is a good idea but proceed with caution.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Stock markets are rallying this month for a variety of reason, but primarily in response to the exciting prospect of effective Covid-19 vaccines. Two prominent US pharma companies have seen their vaccines sail through phase 3 trials with 90% and 95% success rates. That’s wildly more impressive than scientists previously expected, and hope has been well and truly ignited.

Covid-19 vaccines boost the FTSE 100

The companies both make their vaccines using technology called mRNA, which programs the body’s cells to produce antigens and generate immunity. It’s very exciting news as the year-end approaches and stock markets globally are rejoicing.

The UK government has reportedly ordered five million doses of Moderna’s 95% effective vaccine, along with 40m doses of Pfizer/BioNTech’s 90% effective vaccine. Most people will need at least two vaccine shots each, and the country has a population of roughly 66m people. This means the government needs to order a lot more to be in a position to accommodate everyone.

There are also further hurdles ahead. Firstly, the vaccines must be approved by the US Food and Drug Administration (FDA). They also need to be stored at freezing temperatures, making distribution and manufacturing at scale tricky. Dosing must follow a strict regime which also varies between vaccines. Finally, the frequency of vaccination is unclear yet, but it’s highly likely that we will require recurring vaccines. In any case, a first round of vaccines is a step in the right direction.

Syringe and vial on blue background

Stock market volatility ahead

All this points to volatility ahead in the UK stock market. While the positive sentiment is very welcome after a year that’s proved dismal for many companies, it seems we’re not at the finish line quite yet.

Pfizer believes it can produce enough vaccines for between 600m and 700m people before the end of 2021. That’s not enough to get 70% of the world’s population inoculated, so vaccines from multiple manufacturers are necessary. Hope remains for the AstraZeneca/Oxford vaccine, which follows a different design. Pressure is mounting on this one because the UK government has ordered 100m doses. Results are due in the next few weeks. Meanwhile, AstraZeneca’s share price is slipping.

Buy cheap shares and hold

The continued volatility provides an opportunity for savvy investors to buy cheap stocks and hold them for the long term. Positive sentiment returning to the UK stock market after months of negativity is reassuring to long term investors.

The main stocks soaring in response to the news were in the sectors hardest hit by the pandemic’s lockdowns. Travel, entertainment, oil, airline, and industry stocks all rallied on hopes that demand for their products and services will soon return. During last week’s rally and yesterday’s bounce, clear winners were Rolls Royce, Cineworld, Whitbread, and IAG. Some have slipped back today. Personally, I think Rolls-Royce is too big to fail, but I’m bearish on Cineworld and Whitbread. Nevertheless, all of them demand a degree of caution. Cheap shares I like in the FTSE 100 include BAE Systems, Vodafone, GlaxoSmithKline, and Glencore.

With virus cases still rapidly increasing, investors should not be complacent. The vaccine news is very welcome, but UK citizens are unlikely to receive it until springtime at the earliest. Therefore, risk remains in the UK stock market until we bring the virus under control.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kirsteen owns shares of BAE Systems and GlaxoSmithKline. The Motley Fool UK has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »