The Sky is the Limit

By Marius-Cristian Frunza
Weekly Briefs

The crisis generated by the pandemic outbreak damaged most sectors of the economy. Amid weak macroeconomic figures, stock markets reached their highest point in history. What will happen when the economy starts to recover? Will the stock market climb sharply towards new peaks? Will central banks increase interest rates? Is there a limit?

We believe that there are no limits. There are no upper limits for a future rally in 2021, and there are no lower limits since most investors are already aware of negative prices. Nevertheless, the question of limits requires to redefine the options pricing models. Two aspects need to be considered. On the one hand, the concept of “risk-free rate” needs to be revisited. Borrowing and placing monies with no risk makes no sense because the money market offers not time value.

Therefore, the concept of risk neutrality is obsolete in the current environment. Pricing under historical probability would provide more realistic valuations.

On the other hand, options pricing theory assumes that assets values are strictly positive. Except for some recent developments in interest rates, all models do not include the scenario of a negative asset value. Therefore, most equity options are at least in theory under-priced. It is maybe the time to observe more retail activity in the derivatives markets.

If the sky was the limit, none of our heroes would have reached the moon. Matshona Dhliwayo, Canadian philosopher

Market overview

Non-farming payrolls increased in November by 245,000 well below the October figures and analysts’ expectations. The acceleration of the pandemic spread in the US amid the cold season fuels fears of a stricter lockdown after the New Year when the elect president will be officially in the office.

Thus, employers are not so keen to hire fearing a new slowdown of the economy in the first quarter of the next year. And yet, nothing can stop the stock market in its triumphant march. The recent announcements concerning the early approval of the COVID vaccine brought a new wave of optimism and bolstered the market indices.



Mass vaccination is on the agenda of most developed countries for 2021. Moderna and Pfizer share the pole position in the race to take over this new market. Many investors made a lot of money on Moderna, and they are curious to know if there is any place left to extract more profit. The real issue of all these vaccines concerns their efficacity and the duration of their immunity. The better solution will have a bigger market share.

Moderna brought evidence that its vaccine confers immunity three months after injection. It is, without doubt, a positive signal that bolsters the stock this week. If the FDA issues an emergency approval of the Moderna vaccine, we could observe a real bubble by the second quarter of next year.


The dollar dilemma

Since May, all markets go North except the US dollar, which is continually losing ground compared to the Euro. Seemingly, Biden’s victory did not bring the expected support to the American currency. There is a slow trend of de-dollarization across international markets, as many governments from the emerging countries are selling part of their dollar reserves. Gold prices did not recover as expected, thereby implying that institutional investors redirect their funds towards other currencies, including the Swiss Franc and the Euro.  If the United Kingdom manages to seal the Brexit deal, we could witness a strong rally of the British pound. But a weak dollar may not be a positive thing for the economic recovery. Most international trade contracts are negotiated in dollars, and the current trend may hinder the growth and lead to an increase in consumer prices for imported goods and services.



Kandi Technologies Group is another example of a NASDAQ listed company that surfed the bubble created by the electric car revolution triggered by TESLA. Hindenburg Research issued a negative report about the firm headquartered in China underlining several irregularities in their accounting and business practices. Kandi’s share price dipped by more than 40% last week after reaching a maximum in the second half of November. This move came amid a global bullish trend on the stock market. Investors became suspicious and shorted the stock, Kandi sharing the same fate as Nikola, another company that aimed to get onboard on the electric car rally.



The United Kingdom has approved the Pfizer–BioNTech vaccine after passing the safety and efficacy tests. The COVID vaccine is not only a solution to the current global crisis. It is a game-changer in modern medicine. The Pfizer–BioNTech vaccine is the first mRNA vaccine in history. Such vaccines allow in theory inserting or re-writing parts of human DNA, thereby opening the gates to the development of transformative medicine. The rally on Moderna’s shares impacted the gene-editing biotech companies positively.  CRISPR Therapeutics is a leading company in this field, developing a proprietary CRISPR/Cas9 gene-editing platform, allowing for precise, directed changes to genomic DNA.

Market outlook

The Dow Jones continued its rally and reached 30,200 USD. The market applauds the forthcoming COVID vaccines and the foreseeable stimulus package.

Bitcoin is still in a bullish mode and ended the week at 18,200  after flirting with 19,500. Crypto-currency investors encompass a significant number of speculators aiming to make a profit in the short term. There is a mass of Bitcoin believers that will bring support in the long run, and for this reason, we still see the potential for Bitcoin to expand. Thus, Bitcoin is becoming slowly but surely a leading asset in the investment, and we expect to see Bitcoin rising towards 20,000 in the early days of 2021.

General Disclaimer

The information and data published in this research were prepared by the market research department of Darqube Ltd. Publications and reports of our research department are provided for information purposes only. Market data and figures are indicative and Darqube Ltd does not trade any financial instrument or offer investment recommendations and decision of any type. The information and analysis contained in this report has been prepared from sources that our research department believes to be objective, transparent and robust.