Vaccine News Shakes Up the Stock Market

Investors looking past the presidential election for the next market-moving news break were rewarded earlier this week when Pfizer announced that it had made some headway in the fight against COVID-19. Word that the drug-maker’s vaccine had proved 90% effective in preventing the virus during clinical trials electrified the markets Monday, with both the S&P 500® Index and Dow Jones Industrial Average touching historical highs during the day.

With the United States continuing to report record high numbers of cases—daily case tallies have topped 120,000 in recent days, and more than 10 million cases have been reported in the country so far—having an effective vaccine would be very big news indeed.

Beyond the obvious benefits to public health, a major hope, particularly among investors, is that with a vaccine in hand, the country could be on the verge of unleashing an economy that had already turned in a very good performance in the third quarter. U.S. gross domestic product grew more than 33% on an annualized basis in Q3 compared with the previous three months, thanks in part to big surges in consumer spending and housing—though, those results also benefited from the fact they’re being compared with exceptionally depressed economic data from Q2.

Meanwhile, the economy continues to add jobs, if at a slightly slower pace than over the summer; corporate earnings are showing signs of improvement; the Federal Reserve is committed to providing monetary support; and Congress could come together to pass additional fiscal stimulus. While there are no guarantees when it comes to the markets, investors apparently do see reasons for confidence.

Sectors and industries

An improving macroeconomic picture will mean different things to different parts of the stock market. Some of the big gainers from the vaccine news Monday were in sectors that had faced exceptional challenges in the early days of the pandemic, including airlines and cruise operators. The energy sector also had a good day, thanks to expectations of improving demand for fuel if the virus is routed.

Some consumer discretionary stocks that were thought to benefit from the pandemic—such as Netflix and Amazon—had a bumpier ride.

Looking past these immediate swings, the health care sector looks set to outperform, though perhaps not for reasons one might expect at a time when potential vaccine breakthroughs are in the news.