Vaccine news catapults investors’ economic-recovery bets

November 9, 2020

By Tom Westbrook and Lewis Krauskopf

SYDNEY/NEW YORK (Reuters) – News of an effective vaccine against the novel coronavirus is fueling bets that a global economic recovery will buoy wide swaths of the market that have struggled under nearly nine months of the COVID-19 pandemic.

Pfizer Inc <PFE.N> said on Monday its experimental COVID-19 vaccine was more than 90% effective, a potentially major victory in the fight against a pandemic that has killed more than a million people, battered the world’s economy and upended daily life.

Pfizer and its German partner BioNTech SE <BNTX.O> expect to seek U.S. authorization this month for emergency use of the vaccine, raising the possibility of a regulatory decision as soon as December.

Investors piled into banks stocks, airlines and other economically sensitive companies that had been battered by months of coronavirus-led lockdowns and travel bans, pushing the Dow industrials <.DJI> and S&P 500 <.SPX> to fresh record highs, while havens like gold and the Japanese yen sold off and the U.S. Treasury yield curve steepened.

For months, many investors viewed the development of an effective vaccine against COVID-19, which has killed 1.2 million people globally, as the most important catalyst for healing the global economy and bringing about the next major shift in financial markets.

The prospects of a working vaccine sometime next year could force investors to reevaluate a range of recent bets, from how big of a fiscal stimulus lawmakers may need to provide to whether the Federal Reserve will keep interest rates near historic lows for as long as previously expected.

It may also dent the allure of the big technology and momentum stocks, whose revenues have proven durable during the pandemic. Some of those huge stocks, such as Amazon.com <AMZN.O>, were underperforming on Monday.

“I think this really takes two big uncertainties – the health impact of COVID and the economic impact of COVID – and creates a pathway now that I think investors can see to progress and to the restoration of our health and the economy,” said Jack Ablin, chief investment officer at Cresset Capital Management.

To be sure, obstacles remain before achieving broad protection against the coronavirus.

Pfizer is waiting for more complete safety data before seeking emergency U.S. approval for the vaccine. Should the vaccine be authorized, logistical challenges potentially could undermine distribution while many Americans carry skepticism about vaccines that could prevent widespread inoculation.

“There’s a long road ahead still,” said Nigel Green, the chief executive of deVere Group, in an note to investors. “I would urge investors to remain optimistically cautious and avoid the ‘buy everything’ mindset.”

Investors have anticipated that an effective vaccine could be a catalyst for industries that have been crippled by economic shutdowns designed to control the coronavirus pandemic. Those include airlines, cruise ships, hotels, casinos, all of which were surging on Monday.

The broad dissemination of a working vaccine also could lift sectors seen as particularly sensitive to the economy, including energy, financials and industrials. Amid the gain for the S&P 500 on Monday, those sectors were outperforming.

“What we’ve done is given ourselves some optionality for a recovery trade, or a vaccine trade, by having some exposure to financials,” said Binay Chandgothia, a Hong Kong-based portfolio manager at Principal Global Investors, before news of the vaccine was released.

Banks benefit from increased economic activity and would be helped if bond yields rose, he said, adding that he had increased exposure to growth-sensitive small companies and would buy stocks in Singapore and Hong Kong if trade and travel pick up.

Brian Jacobsen, senior investment strategist at Wells Fargo Asset Management in Wisconsin, said ahead of the vaccine news that industrials offered broad exposure to a rebound in confidence in areas from building products to aviation.

Some global investors had also set up plays before Monday that would benefit from a potential shift in market leadership that a vaccine could bring.

Shinji Naito at Japan’s SPARX Asset Management, which has $12 billion under management, hopes a vaccine could trigger a payoff from shorts in stocks pumped up by the pandemic, such as some technology firms, while helping long investments such as realtor Tokyo Tatemono <8804.T>, he said before Monday’s news.

(Reporting by Tom Westbrook in Singapore and Elizabeth Howcroft in London and Lewis Krauskopf in New York, writing by Ira Iosebashvili; Editing by Vidya Ranganathan, Sam Holmes and Edward Tobin)