MANHATTAN (CN) — Wall Street’s fears of a huge second wave of coronavirus were erased by the promise of a vaccine and hope that President-elect Joe Biden’s team is sufficient to battle Covid-19.
At the opening bell, the Dow hurdled 1,570 points immediately, a 5.5% increase, while the S&P 500 and Nasdaq gained 3.7% and 1.2%, respectively. By the closing bell, the Dow had only given up some of its early gains, settling at an 835-point, or 2.8%, rally for the day. The S&P 500 posted lesser gains, seeing a 1.1% increase.
But the Nasdaq, which had been the leading index during the shutdowns due to the heavy reliance on Big Tech stocks, actually fell 181 points by the close of trading, about a 1.5% decrease.
The rally was driven by news early Monday morning from Pfizer and BioNTech announcing their vaccine candidate was more than 90% effective in preventing Covid-19 infection.
Pfizer noted that it could not apply for FDA Emergency Use Authorization based solely on the efficacy results, but the news is certainly welcome for markets, which many analysts said would not truly return to normal until an effective vaccine was made available.
“This hopefully is the beginning of the end of our fight against Covid,” wrote Peter Boockvar, chief investment officer at Bleakley Advisory Group in an early investor’s note.
Medical experts had pinned their hopes on a vaccine that was at least 75% effective, and investors would be satisfied with one at least 60% effective, according to analysts at Goldman Sachs.
Nevertheless, some logistical problems with the vaccine remain. It would require two doses to be effective; it has a short shelf life; and its final efficacy percentage is not yet known. Still, investors are shorting the negative and banking on the silver lining, even if 2021’s economy ends up being a mixed bag.
“This isn’t 2009 redux,” wrote James Meyer of Tower Bridge Advisors. “Markets have been seeing through the virus surge for some time. A vaccine helps, but remember that in the last 20 years when earnings rose by 15% or more, stocks fell nine times. Interest rates and P/Es matter as much.”
President Trump also lauded the news. “STOCK MARKET UP BIG, VACCINE COMING SOON. REPORT 90% EFFECTIVE. SUCH GREAT NEWS!”
A number of supporters of the president quickly gave credit to Operation Warp Speed, a public-private partnership to accelerate the development of a Covid-19 vaccine. In reality, however, Pfizer was not part of Operation Warp Speed and has denied using federal funds to develop its product.
“We were never part of the Warp Speed,” Dr. Kathrin Jansen, head of research and development at Pfizer, told The New York Times. “We have never taken money from the U.S. government, or from anyone.”
Biden called the news excellent but urged Americans to continue wearing masks and to socially distance themselves. “Today’s news is great news, but it doesn’t change that fact,” the president-elect said in a statement.
Investor notes on Monday morning pointed to expectations that the hardest-hit sectors — airlines, hotels, cruise lines, and other travel and hospitality areas — would see the biggest lift from the news.
A number of airline companies saw their stocks surge early Monday. American Airlines saw its shares jump nearly 25% in premarket trading and settled up 15%. Shares of Delta and United Airlines following closely behind, closing out the day up 17% and 19%, respectively.
Shares of Carnival Corp., one of the world’s biggest cruise lines, gained 39% for the day. The biggest jump was for AMC Entertainment Holdings, which leapt up 88% in premarket trading. The movie theater company finished Monday up 51%.
Prior to the vaccine news, investors abroad had been ebullient over the Biden win. The MSCI World Index, which is used to measure equity market performance in global emerging markets, came close to hitting a new high last week after it became clear that Biden had won enough electoral votes to capture the presidency. The index hit of 2,491 points on November 5, a few points lower than its previous high of 2,494 points back in September.
Indices in Asia were all more than 1% higher on Monday, with Japan’s Nikkei gaining 2.2% by its close and hitting its highest mark since the early 1990s. European markets were absolutely booming on Monday, with indices in Germany, France, and the United Kingdom all gaining slightly less than 5%. The pan-European Stoxx 600 gained just shy of 4% for the day.
Investors could see more happy days soon as Moderna is expected to release Phase III results on its Covid-19 vaccine candidate later this month.
Unfortunately, positive vaccine news is countermanded by cases of Covid-19 continuing to skyrocket. More than 50 million cases have been reported worldwide, according to data compiled by Johns Hopkins University, and 1.2 million people have died. In the United States, 10 million have contracted coronavirus, while more than 237,000 have died.
“The vaccine news is fantastic, but it’s not going to stop the US reaching 200K cases per day by Thanksgiving, and potentially 1M per day by year-end, with fairly obvious consequences for the hospital numbers,” tweeted Ian Shepherdson, chief economist at Pantheon Macroeconomics. “Right now, Covid is out of control in the U.S.”
Prior to the Pfizer announcement, the election was front and center on investors’ minds.
Biden was declared the winner on November 7 after solidifying his win in Pennsylvania and taking its 20 electoral votes. While President Trump has yet to concede, and in fact plans on launching a legal salvo to contest the election, Biden’s advantage in votes seems nearly impossible to overcome.
Biden inherits an economy that is recovering but still frail. Many experts, including the Federal Reserve, had predicted the U.S. economy to shuffle along through 2022 regardless of who is president.
“With the health situation rapidly deteriorating and economic momentum slowing, we forecast GDP growth averaging 3.6% in 2021, compared with 3.7% last month,” said economists at Oxford Economics over the weekend. “Real-time data is quite sobering with demand being restrained by surging Covid-19 infections, rising over 100,000 per day, and slower employment gains proving insufficient to offset lapsing fiscal aid.”
Business groups see the Biden presidency as a reset on issues like immigration and tariffs that were derailed during the last four years. It also presents a good chance at a phase four stimulus package soon out of Congress, they speculate.
“There is no time to waste in moving to a Phase Four package,” Neil Bradley, chief policy officer at the U.S. Chamber of Commerce, told reporters on Monday. “Waiting until the end of January at the earliest risks lots of unnecessary economic loss.”
On Monday, Biden announced a team of 13 health experts to advise him on the coronavirus pandemic. “The president elect has a lot of experience in Washington … and has access to a lot of really qualified, talented individuals who he’s worked with in the past,” Bradley said.
One of those experts, Dr. Michael Osterholm, told CNBC on Monday that the United States was just about to “enter Covid hell” and that the “next three to four months are going to be, by far, the darkest of the pandemic.”