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Pfizer breakthrough unleashes animal spirits

Bloomberg11/10/2020 11:16 AM GMT+08  • 3 min read
Pfizer breakthrough unleashes animal spirits
Experts caution, however, that the road to a vaccine will not be a short one.
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A wave of euphoria surged through global financial markets Monday after a study showed a vaccine developed by Pfizer Inc. and BioNTech SE protects most people from Covid-19.

Investors stampeded out of haven assets like the yen and Treasuries and rushed into securities most exposed to an economic recovery. The outsized moves reflected pent up hope that a return to normal lies in the not-so-distant future, even as experts cautioned the road to a vaccine will not be a short one.

“Trading the beginning of a pandemic, in some ways, is easier than trading a vaccine to address the virus,” said Jim Vogel of FHN Financial. “The next story chapters are obscure and harder to time. For the first day of the news, the reaction in the bond market looks appropriate, while equities appear slightly ahead of themselves.”

Here’s a look at the major moves:

Value Surge
Investor euphoria over the potential breakthrough sent the world’s cheaper stocks surging the most on record relative to their faster-growing peers. The MSCI All-Country World Value Index jumped 3.7% on Monday, while its growth counterpart fell 0.7% as investors rotated out of defensive technology names and into shares depressed by the economic impact of lockdowns. Buying cheap stocks -- a strategy that has repeatedly failed investors -- is likely to show “greater staying power” this time, according to JPMorgan Chase & Co. quantitative strategist Marko Kolanovic.

Haven Dump
A global rush out of haven assets after the positive vaccine news sent the yen tumbling by the most since March on Monday. The Japanese currency fell almost 2% against the greenback in heavy volume, weakening past the 105 level. The move was a rapid reversal for the yen, which had reached close to 103 per dollar on Friday amid uncertainty over the U.S. election result.

Retail Rush
The euphoria was most evident in stocks favored by retail traders, such as cruise operators and airlines. A Goldman Sachs basket of retail favorites closed up over 4%. So overwhelming was retail’s celebration Monday that brokerages from Charles Schwab Corp. and Vanguard Group Inc. to TD Ameritrade Holding Corp. faced technical difficulties.

Steady Volatility
With volatility already falling in the aftermath of the U.S. election, Monday’s dramatic risk-on move saw the Cboe Volatility Index halt its decline. The VIX edged higher, bringing to an end a five-day streak of losses.

Junk Jump
Already buoyed by Joe Biden’s presidential victory, U.S. junk bond yields plunged to a record low on Monday. The average yield for the Bloomberg Barclays U.S. corporate high-yield index sank to 4.56%, dropping below the previous record of 4.83% set in June 2014.

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