Progress on Covid-19 Vaccine Boosts Global Markets

A Light At The End Of The Tunnel

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Key Takeaways:

• The vaccine milestone spurred enthusiasm in the global markets.
• A rally in equities as the world begins to see the start of the end of the pandemic.
• Volatility ahead as developments unfold.

The broad global market soared on Monday fueled by vaccine hopes. A scientific breakthrough revealed by drugs firm Pfizer promises to be more than 90% effective in preventing Covid-19. US-based Pfizer, in partnership with a German biotechnology company BioNTech, announced on Monday that they have successfully treated over 43,000 participants in Phase 3 of the trial. The results pointed to over 90% efficacy rate with no serious side effect concerns for the patients.

The scientific achievement spurred the enthusiasm of the market. And investors rushed to buy singular stocks and whole indexes.

Perceived Return to Normality Spurs the Markets

The news was released in the afternoon hours of the European trading session. This immediately caused a rally in European equities. The perceived return to normal life and regular activities, caused a rush to invest in the industries that were put on hold for most of the year. Therefore, the biggest gainers were companies that were hit the hardest by the pandemic. As such, Rolls-Royce shares closed up 44%, the best day ever for the UK jet engine and luxury car maker. And Cineworld, the world’s second-largest cinema chain, jumped 40% on the news along with British Airways owner International Airlines Group (AIG) also up 40%.

US stock futures pointed to record highs in the pre-market hours and opened at intraday highs. The S&P500 reached an all-time high of 3,364.27 points, up 3.6%. While the Dow Jones Industrial Average also leaped to a record high of 29,757.35, up 5.1% or 1,434 points.

Similar to the reaction in the European market, cyclical stocks in the airline, hotel, and restaurant sectors skyrocketed along with the financial sector. JPMorgan Chase advanced more than 13%, while Bank of America closed 14.2% higher. On the other end of the spectrum, investors sold stocks like Zoom, Netflix, and others that became popular during the lockdowns. Zoom Video closed 17.4% lower, Amazon was also down by 5.1% and Netflix dropped by 8.6%.

Positive News, But Still Some Uncertainty Ahead

As we are seeing investors rotating away from work-from-home stocks, risks still remain on the table. In a more cautious approach, President-elect Joe Biden appeared publicly after the news. He warned that we are “many months” away from a vaccine. US officials and scientists are hopeful that the world may see a vaccine put to work as early as the first half of 2021. An efficacy rate of 90% is way more than the 65% rate scientists have anticipated. According to regulations, the US FDA requires at least 50% effectiveness for the Covid-19 vaccine to be approved.

Markets seem to still be absorbing the news well as European equities are trading to the upside for a second day. The FTSE 100 is now up 1.50%, followed by the French CAC 40 up 1.20%, while Germany’s DAX is relatively unchanged. US equity futures point to a higher open currently only for the DJIA, up 0.77% in the pre-market, while S&P500 futures and Nasdaq futures point to a lower open of 0.10% and 1.50% respectively.

The vaccine by Pfizer significantly improved market optimism. Furhtermore, investors can now be hopeful that the uncertainty about the pandemic will be lifted from the markets. Even though Pfizer and BioNTech announced the major breakthrough, a promising vaccine that defeats Covid-19, the world still needs to find a way to deal with the accumulated debt over the past nine months. Therefore, markets may be subdued to increased volatility as the developments unfold.

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