Tuesday, November 10, 2020

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Spending paused because of uncertainty now has some answers.

On Monday, Pfizer (PFE) and its German partner BioNTech shook markets with the most positive news yet on a potential vaccine for COVID-19.

Before the market open, the companies announced their mRNA-based COVID vaccine candidate has indicated an efficacy ratio north of 90%.

Pfizer CEO Dr. Albert Bourla said of the results, “Today is a great day for science and humanity.” Dr. Anthony Fauci called the results “extraordinary.”

Following this news, markets soared with the Dow (^DJI) and S&P (^GSPC) hitting intraday record highs before fading a bit into the close. The Dow’s close at 29,157 was still the index’s highest close since February 20.

And some of the biggest pandemic trends were reversed sharply as investors placed big bets on this news serving as a key step in the economy’s return to something like normal.

Big “stay at home” winners like Zoom (ZM), Peloton (PTON), and Netflix (NFLX) were under pressure.

Airlines rallied, with shares of United (UAL), Delta (DAL), and American (AAL) all rising more than 15%.

These lists go on — office space REITs were big winners, eCommerce plays like PayPal (PYPL) and Shopify (SHOP) sold off, gym operators rallied, banks jumped, credit card issuers were higher, and so on.

But the market’s reaction holds a key lesson for investors who might’ve been surprised to see such an enthusiastic reaction to this news. Especially considering the relative optimism the scientific community has had around vaccine development for some time.

And the lesson is that even a tentative roadmap for a vaccine allows businesses and consumers to plan in a way that has been nearly impossible for the past eight months.

“With the vaccine news today, households and firms are going to plan ahead, for example by booking travel, vacation, and capex,” said Torsten Sløk, chief economist at Apollo Global Management.

“The implication is that we will immediately begin to see the positive effects on employment, GDP, and earnings, even before the vaccine is available to the public.”

In other words, Pfizer’s vaccine or any others that follow need not be distributed to the population before starting to directly aiding the economic recovery. Sløk also notes that sectors of the economy that include close proximity to others account for about 22% of total employment.

And as we saw in the October jobs report published Friday, the number of workers out of a job in the leisure and hospitality and business and professional services sectors totaled 4.5 million, accounting for the vast majority of those who still remain unemployed. As of October, the number of workers unemployed remained 5.3 million higher than in February.