Image shows a picture of Lindsey Bell, Ally Invest’s chief investment strategist. The title reads “Vaccine News Injects Hope Into the Market”.

A COVID vaccine could finally be on the horizon.

On November 9, Pfizer gave the market a shot in the arm when it reported better-than-expected preliminary results from its COVID vaccine trial.

For months, we’ve been anxiously awaiting a clear sign that we are on the path to a sustainable recovery. Americans are eager to put COVID fears behind them, and a viable vaccine was considered one of the best ways to do that. Pfizer’s vaccine, which showed an unusually high effective rate of 90%, could be that ray of hope. And that hope could keep markets and the economy afloat through the winter.

Chart shows the S&P 500 Index performance from January to November 2020, highlighting an 8.2% increase in November, its best start to the month since 1955.

Hope for the market.

The market’s recent strength has been hard to ignore. The S&P 500 has climbed 8.2% so far in November, its best start to the month since 1955. Investors clearly felt encouraged by recent headlines. Sure, we’re in a seasonally strong period for stocks, but we didn’t expect a return to all-time highs this quickly.

The recent rally looks healthy and broad, too. On Tuesday, 86% of S&P 500 stocks closed above their 200-day moving averages, the highest percentage since before the pandemic (and one of the highest percentages since 2014). We’ve wanted to see a broader market recovery since the depths of March, and we may be getting our wish.

Those are promising signs indicating that Pfizer’s vaccine news may be enticing investors back into the market. But as COVID cases continue to rise, the news may drive less downside risk, instead of more upside potential for now. However, market action in these last two weeks has been impressive, and if early October and early November are any indicator, a “buy the dip” mentality may overpower market pullbacks when bad news strikes.

Hope for the economy.

A vaccine would be a huge win for the economy. We’ll state the obvious first: an effective vaccine could lead to a fully operating society. And a fully operating society should benefit company earnings, the GPS of the stock market.

The American consumer has been resilient through most of the pandemic, and the hope of a vaccine in the near future could be enough to fuel consumer confidence during the holiday season. Spending over this crucial period could provide clues into what the next leg of the economic recovery could look like.

To be sure, high levels of unemployment and dwindling government help could pose a challenge to holiday spending. Another round of fiscal aid from Congress may be even more urgent now, considering the increase in COVID cases is leading some states to ramp up restrictions. We believe fiscal stimulus could be an important driver for economic growth and consumer support in the near-term.

Hope for normalcy.

“Stay-at-home” stocks have dominated the market’s attention for most of this year. But this week, we’ve seen a lot of interest in the “re-opening stocks”, or companies that have struggled to thrive in the new normal. S&P 500 airline and cruise stocks, two industries hit the hardest by COVID, have risen at least 6% this week. Energy and financial stocks led gains among major S&P 500 sectors through Thursday.

Speaking of hope, investors seem to be rushing into even the most down-and-out stocks in a bet that a post-pandemic rising tide will lift all boats. In fact, the 10 worst-performing S&P 500 stocks this year (through November 6) have climbed 16% this week.

The chart shows weekly changes in the S&P 500 Index and Nasdaq 100 from June 12 to November 13, showing a steep rise in the S&P 500 compared to tech stocks c in the week of November 13.

Bad news for the high flyers, though: investors are taking a break from tech (for now). The tech-heavy Nasdaq 100 is on pace for one of its worst weeks compared to the S&P 500 in the last decade. Zoom Technologies (of the “Zoom happy hours” fame) has plunged 14% this week. Peloton has dropped 13%.

We think there’s still a good long-term case for tech stocks, but the sector may take a back seat to the rest of the market if growth picks up and the economy fully reopens.

Hope for the future.

Most importantly, the Pfizer vaccine news has given us hope for better days. That feels pretty good in what’s felt like a hopeless year.

There are still risks, though. COVID cases continue to surge, which could mean a rough winter, so we aren’t out of the woods just yet. We’ll keep an eye on that, but for now, we’re still hopeful. In the meantime, it may be worth considering a few of the beaten-down stocks before the “re-opening” chatter heats up too much.


 
Speech bubble icon next to text "Expert Take"

Headshot of Lindsey BellLindsey Bell is Ally’s Chief Investment Strategist, responsible for shaping the company’s point of view on investing and the global markets. She is also President of Ally Invest Advisors, responsible for its robo-advisory offerings. Lindsey has a broad background in finance, with experience on the buy-side and sell-side, in research and in investment banking and has held roles at JPMorgan, Deutsche Bank, Jefferies, and CFRA Research.

Lindsey holds a passion for teaching individuals how to become successful long-term investors. She is a contributor at CNBC, and frequently shares her insights with various publications including the Wall Street Journal, Barron’s, MarketWatch, BusinessInsider, etc. She also serves on the board of Better Investing, a non-profit organization focused on investment education.


The opinions expressed here are not meant to be used as investing advice. For more information, visit our website.