Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

Another week, another battle between the bulls and the bears. Watching the stock markets is anything but dull right now.

First, the good news. Having lost its early lead to the Americans, AstraZeneca and Oxford University are back on the front foot this week, with positive results from their vaccine trial. One dosing regime - a small priming jab followed by a full dose later - looks to be 90% effective. That’s up there with the Pfizer and Moderna treatments, and suggests we really might be heading back to normal next year.

The AstraZeneca announcement could hardly have come at a better moment because the other news today, on the economy, was what we should expect two and a half weeks into another national lockdown. The purchasing managers’ index, a widely watched gauge of activity, fell to 45.8 in November from 51.4 the prior month for the all-important services sector.

That might have been a bit better than the consensus of economists’ forecasts, but it is well below the 50 level which indicates most businesses are suffering a contraction in activity. Today’s PMI data are the first indication that the economy is going to go backwards in the final three months of the year. The dreaded double-dip after the recovery in the September quarter.

Interestingly, growth in manufacturing accelerated in the latest snapshot. That’s a reflection of how the latest restrictions have deliberately been targeted at pubs, restaurants and leisure activities, while leaving work and education as normal as possible.

The trouble is that services account for about 80% of the UK economy. It’s just not possible for UK plc to be firing on all cylinders unless we can re-open the ‘non-essential’ activities that constitute the lion’s share of economic activity in a developed society.

That, in turn, is why we are so desperate for every crumb of good news on the vaccine front. And it’s why the stock market rallies every time another positive trial result emerges. Shares rose across Europe on the news.

Some investors might be puzzled that the stock market is doing as well as it is when the news on the pandemic front is still so troubling. They should not be surprised. This is how markets work, looking through today’s news to what they believe is coming down the pipeline. It’s what people mean when they say that the stock market discounts the future.

The key question for investors now is how this fast-changing picture should be reflected in their portfolios. This matters because the shares and funds which have done well through the pandemic will most likely not be the same as those that flourish as we get back to normal.

Stuck in lockdown, investors have preferred to shelter in the safety of companies which can deliver growth through thick and thin or which actually benefit from the changes to our lifestyles in lockdown. In a recovery, some of the shares which have suffered most (in travel, hospitality and leisure, for example) could bounce back strongly.

Here at Fidelity, our Select 50 is constructed to offer investors a range of investment styles to suit all eventualities. The Fidelity insight link (here’s an example) on a fund’s factsheet should give you a sense of the market conditions in which a particular strategy should do well.

There is a huge amount of uncertainty about the speed and timing of the recovery and the extent to which the world will revert to its previous ways or be transformed by the pandemic. Because of that, we continue to believe that adopting a range of styles is the safest approach for investors.

To give an example, in the UK, the Fidelity Special Situations Fund is one of the funds that should do relatively well in an economic recovery, having underperformed during the pandemic.

By contrast, the Lazard UK Omega Fund has a bias towards the largest, most international companies in the FTSE 100 index. It is a more defensive fund and might perform less well during a UK recovery.

The Liontrust UK Growth Fund, one of our recommended funds for 2020, has a balance of styles, with holdings spread across defensive, sensitive and cyclical parts of the market.

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Select 50 is not a personal recommendation to buy or sell a fund. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. The Fidelity Special Situations Fund can invest in overseas markets, so the value of investments can be affected by changes in currency exchange rates. Currency hedging is used to substantially reduce the effect of currency exchange rate fluctuations on undesired currency exposures. There can be no assurance that the currency hedging employed will be successful. Hedging also has the effect of limiting the potential for currency gains to be made. Fidelity Special Situations Fund and Liontrust UK Growth Fund use financial derivative instruments for investment purposes, which may expose the funds to a higher degree of risk and can cause investments to experience larger than average price fluctuations. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

Topics Covered:

UK; Volatility; Funds

Latest articles

Are corporate earnings strong enough to sustain markets?

Companies have significantly bettered expectations so far


Graham Smith

Graham Smith

Market Commentator

Challenges mount for Buffett as successor named

What’s eating the world’s most famous investor?


Ed Monk

Ed Monk

Fidelity Personal Investing

Is now the time to buy for dividends? | A new commodities supercycle

This week, after a tough year for income hunters are UK dividends at last in …


Ed Monk

Ed Monk

Fidelity Personal Investing