If there is one piece of good news that has lifted the expectations and hearts of people and the global financial markets, it is the recent news of the coronavirus vaccines. In the same way, that the vaccine is good news for humanity; it is also a game-changer for the entire financial market. For a long time, it looked like there was no end in sight for the pandemic. This led to some financial markets being beaten down and investors becoming hopeless whereas others did so well some suspected there might be a bubble forming.
With the vaccine news and optimism surrounding the financial markets, everyone expects sectoral rotation and more solid consumer confidence. It is expected that there will be a re-emergence of investor demand in equity market sectors.
There is also the expectation of geographical rotation as the vaccine will begin to spread around the world. Countries in Asia like South Korea, China, and Taiwan have recorded impressive successes in managing the pandemic compared to European countries and the United States. As a result of this, their economies have seen an increase in investment inflows. The vaccine news will make their containment skills less critical and lead to focus moving from them to the United States and Europe.
Regardless of this, all world economies will benefit from the news of the vaccine and the optimism surrounding it, leading to global economic recovery. It is expected that the vaccine news will positively affect the economies in the medium-term. However, the road to economic recovery after the massive blow that financial markets received from the pandemic, will be long and difficult.
The Announcement of the Vaccine News
In early November, Pfizer announced the news of its coronavirus vaccine, which had been proven to be 90% effective, leading to its shares climbing by 9%. The markets had already seen a positive increase due to the US election’s outcome but rose further due to the news about the vaccine.
Although the vaccine will not be widely available until mid-next year, investors have placed their bets that this will lead to the reopening of the economies, allowing people to travel, go to work, and gather in public again.
Because of this, stock prices soared, and bond yields skyrocketed for many companies in expectations of the upcoming global economic recovery. Stocks like The Dow went up by 3%. The energy, financial, and airline sectors increased more than that of the technology sector. You can trade the Dow Jones 30 with Accuindex and other indices via this link.
Airlines increased by 16%, the S&P energy sector was up by 14%, and the financial sector was up by 8%. But, the stocks which benefitted from the pandemic, like Zoom and Netflix, experienced sharp drops. This also includes Facebook and Amazon, which were down by 5%. Others include Peloton Interactive, which dropped by 16%, Ocado by 12%, Just Eat Takeaway by 9%, and AO World by 11%.
The underperformance of stay at home plays is expected to continue as long as the value rotation does not stop. Investors are now questioning whether these companies built upon the fact that people are staying at home, will continue to be successful even after the vaccine has been distributed.
Even with all these increases, the initial optimism started to fade towards the end of the trading day. The Dow, Nasdaq, and S&P 500 closed at lower levels. This is probably because even though the vaccine’s news was hopeful, there has still been a surge in cases, with expectations of more months of social distancing and partial lockdowns in most countries.
Although the vaccine will reduce these restrictions, there is no assurance of how long it will take to reach everyone and thus when countries will begin to open as normal. There is also no guarantee of how long it will take specific sectors and markets like oil and airlines to recover from the pandemic and if they can reach pre-pandemic highs again.
The Post-Pandemic Economic Future
With the introduction and distribution of the vaccine, a lot is expected from the global economy and its recovery process. The economy is experiencing a transition economy, and investors can only remain motivated. Stock prices can also increase if there is a sign and confidence that the global economy will experience sustainable growth.
Right now, the financial markets are changing based on the expectations of a company’s earnings increasing or decreasing and not on valuation. That’s why oil, airline, and cruise stocks are growing based on the expectations that people will book more tickets and buy more oil, leading to increased company earnings.
On the other hand, Netflix and other “stay at home” stocks are decreasing because it is expected that the company’s earnings will fall when people can leave their homes and lead a normal life again.
The news of the vaccine is not enough to push the financial market in recovery, and there are still many steps to take and risks to overcome before the world can experience sustainable growth.