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Vaccine news sees markets rise but caution urged

9 November 2020

Global stock markets staged a rally on Monday amid the news that a Covid-19 vaccine is in sight, but commentators urged investors to remain cautious and not to be overly optimistic.

Pfizer and BioNTech announced that their vaccine had a 90% success rate in preliminary results.

The positive news saw the FTSE 100 soar by 5.5% while the CAC in Paris and Frankfurt’s DAX jumped 8% and 6% respectively. Meanwhile, Wall Street benchmark S&P 500 opened 3.7% higher in reaction to the latest developments.

Russ Mould, investment director at AJ Bell, said Pfizer’s announcement had acted “like a shot of adrenaline” for the financial markets, triggering one of the biggest single day movements in global equities in a long time.

Mould said: “Investors are taking this to be game-changing news judging by how they are bidding up shares in large parts of the market. In particular, all the stocks that were badly sold off this year are now among the biggest risers of the day as investors assume the vaccine will be deployed successfully and there is now a greater chance of earnings recovery in the short to medium term.”

British Airways’ owner International Consolidated Airlines, holiday group TUI and cinema operator Cineworld were among the stocks that rallied on the good news. In contrast, companies that benefited from lockdown lagged, with Ocado falling 11% and Just Eat Takeaway tumbling 8%. Stocks connected with Covid-19 testing were also in retreat as investors took the view that their medium to long-term prospects were less attractive.

Paul Craig, portfolio manager at Quilter Investors, said that while the vaccine should not be considered a silver bullet, with many structural issues like unemployment likely to persist, the news signalled the “first major step back towards normality” for those worst-affected by the pandemic.

Craig said: “For now it is a positive and the companies benefiting certainly represent a ‘reopening trade’ of some sorts. This means the laggards of the past few months, the likes of hospitality and airlines, are up significantly, while the mega-cap tech stocks are flat. Indeed, some winners of the pandemic are seeing underperformance now as demand for them is likely to be hit.

“It is also hugely positive news for European economies, which have been hit hardest by the pandemic, so it will be interesting to see if this changes their fortunes over the longer-term and be seen once again as investible.”

Craig added: “There are still some questions to be answered around the rollout of this vaccine, and with the US political uncertainty not quite finalised yet, there remains some risk still on the table. But for well-diversified investors, they will do well to stay focused on the middle 80% of companies rather than glamour investing and over the long-term are likely to benefit the greatest from the new environment.”

However, Nigel Green, CEO of deVere Group, warned that markets were “overthinking the news” and were being premature in their buoyancy.

“There’s a long road ahead still. Stocks, including beleaguered travel sector stocks amongst others, are soaring on the back of the news.  But I would urge investors to remain optimistically cautious and avoid the ‘buy everything’ mindset

“The world is still readjusting and many of the changes that have come about from the pandemic are unlikely to be reversed, including the workplace revolution in which more and more people are working from home.”

Green said that while investing in the stock market over the longer-term remained one of the best ways to accumulate wealth, investors “must remember not to be complacent, over-optimistic or premature when an upbeat mood takes over the markets.”

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