On 9 November 2020, Pfizer (PFE:NYSE) and BioNTech (BNTX:NASDAQ) announced they had developed a vaccine for Covid-19 and share prices surged around the world, even if they had already bottomed in the spring after a short, sharp correction.

The two companies may have won the gratitude of many people when they made their announcement three years ago, but the world has now moved on from face masks and lockdowns, even if hybrid working is still with us and governments are encouraging their people to take top-up jabs.

Pfizer’s latest quarterly results (31 Oct) were noticeable for a big drop in revenues and $5.6 billion in inventory write-downs, both related to lower demand for Covid vaccines, and BioNTech cut its guidance for 2023 when it reported its own third-quarter numbers (6 Nov). Both shares have given back all of the ground they gained in 2020 and 2021 (and more).

The economic outlook has changed, too. Massive fiscal stimulus programmes and Covid-19 relief measures, coupled with additional monetary support in the form of zero interest rates and further quantitative easing resulted in too much money chasing too few assets and too few goods. The result was that inflation finally reared its head, after 40 years of lying dormant.

Asset bubbles formed and the price of goods and services soared, helped along the way by the war in Ukraine and the subsequent spike in oil and commodity prices and further damage to global supply chains.

Spooked central banks had to switch course, raise interest rates and, in many cases, launch quantitative tightening schemes, to cool economies, money supply and ultimately inflation.

New sensation

The world looks and feels very different from November 2020 and asset prices reflect this new reality.

Since ‘Pfizer Monday’ three years ago, commodities have done better than equities and equities have done better than bonds. Bitcoin has surged, buoyed by the search for assets with a finite or slow-growing supply, or at least something that central banks could not print or just conjure out of thin air. Meanwhile, the era of zero interest rate policies seems to be over.

The end of that 13-year experiment with rock-bottom interest rates and quantitative easing means that what worked from an investment point of view during that period – bonds, long-duration assets like technology, growth stocks – has found the going tougher since its end.

Conversely, investment options which had done poorly – commodities, cyclicals, value – have tried to stage a comeback. Companies which revelled in cheap debt or financial engineering have come unstuck and firms with sound balance sheets have thrived.

Sector switch

Note how the unloved, derided FTSE 100 – packed with miners, oils, banks, insurers and consumer staples – has outperformed the technology and biotech-laden NASDAQ Composite over the past three years.

By sector, within the FTSE 350, commodity plays such as oil and industrial metals have done well (given a helping hand by the exclusion of Russian supply from global markets), while banks have revelled in a period of rising interest rates and improved net interest margins.

An economic recovery post-lockdown has been welcomed by industrial transportation firms, consumer-facing companies and also aerospace firms, as global tourism picks up. Defence stocks have also gained a boost from conflicts in both Ukraine and the Middle East.

The way ahead

Investors must now decide whether inflation and higher interest rates are with us to stay or not. Growth stocks do not seem entirely sure, given how well America’s Magnificent Seven of Alphabet (GOOG:NASDAQ), Amazon (AMZN:NASDAQ), Apple (AAPL:NASDAQ), Meta Platforms (META:NASDAQ), Microsoft (MSFT:NASDAQ), Nvidia (NVDA:NASDAQ) and Tesla (TSLA:NASDAQ) are doing in 2023 and how the S&P 500 Growth index is refusing to give way to the S&P 500 Value index, after the latter’s attempt to assert itself in 2022.

The relative performance of these two benchmarks could yet provide a valuable clue as to how the macroeconomic, policy and market outlook will develop, and whether the world really is going to look very different in the 2020s from how it looked in the 2010s, from an investment point of view.

Another relationship which could give a strong hint as to whether we are in a brave new world that favours value, cyclicals and commodities over growth, technology and bonds is the one between the Bloomberg Commodity index and the FTSE All-World equity benchmark. Commodities outperformed in the 2000s, equities in the 2010s and raw materials look to have started a fightback in the 2020s.

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