This week started with the good news of the discovery of a potential coronavirus vaccine that is 90% effective in preventing people from contracting the deadly disease. The developers of the vaccine, Pfizer from the US and BioNTech, from Germany said that they are planning to apply for emergency approval so that they can start mass-producing it for the market.
If approved, the companies expect to supply 50 million doses by the end of this year, and around 1.3 billion by the end of 2021.
This news has positively affected the stock markets around the world with futures shares surging in premarket trading.
Stocks skyrocketed and bond yields surged as investors bet the vaccine will help the broader economy recover from the effects of the pandemic and revive cyclicals and other industries that severely affected by the pandemic.
Although the overall market outlook is positive due to this news, some individual companies did not see a significant rise in the prices of their stock, whereas others plummeted.
Stocks that surged
Because the pandemic made countries introduce lockdown to limit unnecessary movement and closed their borders to make sure they do not import more infections, airline companies had to ground most of their aircraft and lay off hundreds of employees because no one was flying anywhere.
Now, with news of the COVID-19 vaccine on the verge of being introduced to the market, it is only right that airline stocks have picked up the pace and surged in anticipation that travel restrictions will be lifted in the near future and have more people flying, which means more revenue.
Airlines rallied 16%.
Cruise liners also experienced a significant drop in their stock prices, as customers had to cancel their earlier anticipated cruise holidays amid fears of being stranded at the sea. The news of a potential COVID-19 vaccine had cruise stocks rally on Monday as companies expect to have their businesses thrive again with more people returning to book cruises and party on the sea. For instance, Royal Caribbean International rose 25%.
Analysts forecast that now that the world is getting closer to having a COVID-19 vaccine, people are expected to spend more on leisure other than essentials as they have been doing throughout the pandemic. As people are expected to return to the theatres for all those Christmas movies, movie theatre operator AMC Entertainment had its stock surge 60%.
Stocks that plummeted
When COVID-19 struck the world, billions of people were stuck at home due to lockdown and travel restrictions. People had to work and study from home, while others had to move all their outdoor activities like exercises to their houses, all helped by the amazing power of the internet.
This helped tech companies that provide cloud computing services, video conferencing companies, online workspaces, online retailers, streaming entertainment services, and providers of online workout video instructors surge. People accessed these services and products from the comfort of their homes like never before.
The biggest gainers include Amazon for their cloud computing, retail and delivery business, Zoom for their video conferencing and workspace software, media services provider Netflix, Microsoft for their cloud computing software, and Peloton, the providers of online workout videos and exercise equipment among others.
These companies, among others that gained in more people staying and working from home during the pandemic, received the news of the development of the COVID-19 vaccine with a crooked face as they saw their stocks fall with double figures on Monday shortly after Pfizer’s announcement.
Peloton and Zoom fell by 13% each, social media giant Facebook by 5%, tech giant Amazon by 2.3% in pre-market trading. It goes without saying that these companies have some of the most expensive stock prices with Zoom currently trading at $376.01 (-9.01%) and Amazon priced at $3,035.02 (-3.46%) but investors still went for them in Q3 and Q4 because they were very profitable.
Now that they are falling, investors could pull out their money and try less-pricey stocks with high growth potential, or they could hold on to them with expectations of bouncing back since it is an early bet for the effects of the vaccine on the stock market.
Another point worth noting is that now that their prices are falling, they could attract more investors now that they look quite “affordable” with expectations of them rising as the economy fully reopens and people return to their old normal lives and spending behaviour.
On Monday, the Dow rose by 1300 points, which is nearly 3%, while tech-heavy Nasdaq fell 1.5. The S&P 500 energy sector was up more than 14%, and financials went up 8%. These were record highs. Energy and financial stocks outperformed tech which has been on the rise recently, and the small-cap Russell 2000 jumped 4.3%.
Ed Keon, the Chief Investment Strategist at Quantitative Management Associates LLC (QMA) predicts that as we return to normal life, many cheap stocks could look attractive.
Bob Doll, the Chief Equities Strategist and Portfolio Manager at Nuveen says that now that we are in a transition period of the economy to reopen, stay-at-home stocks are going to lag as investors build confidence in the sustainable growth pace of the global economy.
Stocks aside, treasury yields pressed higher, with the 10-year yield rising to its highest level of 0.95% since March. Yields move opposite price, and bonds sold off as investors focused on the potential improvement in the economy.
As investors bet on the vaccine to help global economies recover from the effects of the pandemic and grow, the virus has not yet slowed down. More people in the US and Europe, and other parts of the world are still dying and getting infected in record numbers, and some European countries were proposing either full or partial lockdowns and stricter enforcement of social distancing measures. These, surely cannot be good for the markets so Pfizer and BioNTech’s vaccine could not come at a better time.