Yesterday marked a major breakthrough in the pharmaceutical industry, with Pfizer and BioNTech announcing a 90% rate of efficacy on the jointly developed covid-19 vaccine. While news on a Biden victory was already fuelling market sentiment, the announcement of a vaccine discovery sent equity markets soaring, with cyclical stocks posting double digit returns in one day.
Pfizer and BioNTech, are the first vaccine developers to achieve the vaccine efficacy milestone. Dr. Albert Bourla, Pfizer Chairman and CEO announced that “the first set of results from our Phase 3 COVID-19 vaccine trial provides the initial evidence of our vaccine’s ability to prevent COVID-19”. The 90% efficacy against COVID-19, remarkably achieved within a 10-month period, is based on the first interim efficacy analysis conducted by an external and independent Data Monitoring Committee. Furthermore, the trial results exceed the minimum 50% efficacy criteria dictated by the US Food and Drug Administration. Although further safety and efficacy data will continue to be collected from the ongoing clinical trial, it is expected that 50 million vaccine doses will be produced by end of year and 1.3 billion in 2021.
It goes without saying that the positive vaccine development acts as market breather, at a time when concerns over the resurgence of a second wave of the pandemic and the implementation of new lockdowns, were already weighing down on the trajectory of the economic recovery.
Together with the US Presidential Election on November 3rd, equity markets have experienced strong volatility over the past two weeks. After ending the month of October with the worst weekly performance since the sell-off in June, equity markets managed to fully recover the weekly decline during US Election week. The Biden Presidential victory, a closer win than polled, did not lead to the expected “Blue Wave” as Republicans are set to hold on to the Senate Majority. Equity markets reflected the divided government positively, up more than 8% in Europe and more than 7% in the US, as uncertainty associated with potential major policy changes decreased. The best performing sectors for US election week were in fact, the healthcare and technology sectors, as the risk of tighter regulations and tax hikes subsided.
The discovery of strong efficacy in a vaccine development, which remains the key growth catalyst, superseded the US election outcome and triggered a strong vaccine rally. European equity markets added another 6% weekly gain, up 15% since the start of November. The strongest rebound was recorded across the cyclical sectors, particularly the hardest-hit industries in this pandemic, such as travel.
Despite that more covid-19 cases and economic restrictive measures will continue to headline over the winter months, the vaccine discovery boosts growth sentiment and lowers risk premiums going forward. Primarily, the vaccine discovery raises the prospects of a stronger economic rebound when current lockdowns come to an end. As a result, this is triggering a stronger expected recovery in earnings growth, particularly for cyclical companies.
This article was written by Rachel Meilak, CFA, Equity Analyst at Calamatta Cuschieri. The article is issued by Calamatta Cuschieri Investment Services Ltd which is licensed to conduct investment services business under the Investments Services Act by the MFSA and is also registered as a Tied Insurance Intermediary under the Insurance Distribution Act 2018.
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