Pfizer and BioNTech announced that their vaccine has shown a 90% efficacy rate in its phase 3 essay. The news helped fuel a significant rally in global stock markets. The S&P 500 rose 1.2%, after hitting a record high earlier in the session. Despite Monday’s significant rebound, UBS economists continue to believe that stocks will go up from here.
Key Comments:
“The market reaction underscores our recent message that investors need to diversify for the next move, towards more cyclical parts of the market that have lagged behind in 2020, and away from the tech sector and the main beneficiaries of stay-at-home orders. We have said that the next step in actions would be driven by the end of US political uncertainty and mobility gains backed by a vaccine. The events of the past week support our opinion. ”
“Better-than-expected efficacy data increases possibilities of achieving our bullish scenario, in which social activity is fully normalized by the second quarter of 2021 and the GDP of developed countries returns to pre-pandemic levels by the end of 2021. First, greater effectiveness means that pressure on health systems would be reduced if fewer vaccinated people became seriously ill, which in turn reduces pressure on governments to impose restrictive measures. Second, 90% effectiveness may mean that a larger proportion of the population can be protected with fewer doses. ”
“The S&P 500 is approaching our baseline target of 3,700 points for June 2021. However, in our bullish scenario, we would expect to see the S&P 500 trading at 3,900 in June.. Monday’s data reduces the downside risk that an effective vaccine will not be developed in 2021, while making the bullish scenario look more likely. ”
“Planning for new market entries can be difficult when stocks hit record highs due to time constraints. But hitting a record in stocks is not an obstacle to more profit.. Since 1960, returns for one year after the S&P 500 has peaked has been 11.8%, slightly more than the 11.3% average. ”
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Credits: Forex Street
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