S&P 500 hit record highs on vaccine optimism

The S&P 500 index posted an all-time closing high on Friday amid the growing optimism on an effective COVID-19 vaccine by Pfizer which will lead to a global economic recovery. All major global stock markets surged last week despite concerns over the record daily COVID-19 infections and hospitalizations in the U.S and Europe together with the fear of further restrictions to curb the spread of the virus.

Vaccine News:

When Pfizer Inc. and its partner BioNTech SE announced last Monday that their Covid-19 vaccine candidate prevented more than 90% of infections in a large-scale study, it caused one of the most dramatic equity rotations of the coronavirus era.

The Pfizer vaccine announcement was a “game-changer” event for the financial markets as the vaccine could put an end to the prolonged pandemic-related crisis and spark a broader reopening of the global economies.

Investors have quickly started shifting out of stay-at-home trades such as technology which have held during the pandemic and getting into cyclical stocks. The sectors such as energy, financial, industrials, travel, airlines, cruise operators, hotels, restaurants, leisure, casino operators, and entertainment are economically sensitive cyclical sectors that would benefit greatly from a vaccine as it would allow the global economy to start reopening completely.

In addition to the positive Pfizer’s vaccine development, Moderna Inc said last week that it acquired enough data for a first interim analysis of its late-stage trial.

Market Reaction:

The market participants showed their excitement last week, discounting a potential economic rebound in 2021 and the slowdown of the pandemic. S&P 500 index hit a fresh record high of 3.587 on Friday to an all-time high, gaining more than 2.5% over the week, while the industrial index Dow Jones added 4% weekly gains. The Russell 2000, which tracks small-cap stocks gained +2% on Friday and up 6% for the week,

The tech-heavy Nasdaq gained only 0.60% on Friday while it posted 1% losses for the week as investors rotated away from tech names into cyclical names. “Stay-at-home” stocks such as Zoom Video, Peloton, and Netflix ended the week with significant losses.

On Monday, the US stock futures continue their rally with Dow Jones futures adding another 300 points or 1% up, while S&P 500 futures hit another record-breaking above 3.610 level, up 1%. The Nasdaq Composite also rose 0.5%, trading just above the 12.000 level.

Energy Boost:

Energy giants such as Chevron, Exxon Mobil, Phillips66, and Valero provided the biggest boost to the S&P 500 index on Friday despite the fall in the WTI & Brent crude oil contracts. Overall, the energy sector gained more than 15% last week based on the hopes that an effective vaccine and the stimulus plans under the Biden administration could benefit the oil refining companies from the rising consumption of jet and gasoline fuels in 2021.

On the other hand, crude oil futures fell 2% on Friday and gained only 8% last week, underperforming the energy stocks. Investors worry that the new wave of lockdowns in the US and Europe could damage the demand for petroleum products in the next few weeks.