When Pfizer and BioNTech announced promising results from late-stage trials of their COVID-19
vaccine on November 9, the overall market rallied in relief.
But not every part of the market saw gains.
A closer look reveals rotation out of the stay-at-home stocks and into certain
industries that some investors expect to rebound as the economy recovers.
Let's look at a few of these fallen sectors and a few that have rallied back to life and
what that can tell us about how the market may respond to a vaccine.
On the downside, many big tech stocks like Zoom, Netflix, and Amazon fell on the vaccine
announcement.
Since the pandemic began, these tech companies have benefited from people being homebound
for work and play.
Their strong performance has buoyed the overall market.
But a vaccine may lead to a rotation out of tech and into other areas of the market.
One sector that could benefit is Health Care.
Obviously, Pfizer and BioNTech stock shares benefited from the announcement but so did
many other health care stocks.
Pharmaceutical companies that are developing their own vaccines like Moderna, AstraZeneca,
Johnson & Johnson, Sanofi, and GlaxoSmithKline are hot on the heels of Pfizer and BioNTech.
However, the success of these vaccines is not guaranteed.
More testing is necessary before FDA approval.
It's also not clear how profitable these vaccines will ultimately be.
Some other big winners include the travel and leisure industry.
Stocks like Carnival Cruise Line and American Airlines rallied on the vaccine trial news.
The Dow Jones U.S. Travel and Leisure Index rallied more than 8%.
Of course, many investors expect these stocks to benefit from a vaccine because of the implied
promise of a return to normal vacation, recreation, and business travel.
Getting back to normal also means getting back to work, which is prompting moves in
corporate real estate companies.
These companies were hurt badly by the pandemic's work-from-home push because many buildings
sat empty.
Additionally, the recession made it harder for real estate investment trusts or REITs,
corporations that use pooled money to purchase or manage properties, to collect rent from
struggling businesses.
Collection for some REITs was as low as 65%.
After the announcement, commercial property REITs like Boston Properties, SL Green Realty,
and Hudson Pacific Properties saw rallies of more than 20%, 36%, and 13% respectively.
While rent declined for many of these companies during the pandemic, investors appear to expect
better times ahead.
However, it's difficult to foresee how many companies will actually head back into the
office.
One survey found that 67% of businesses expect to work from home on a permanent basis.
If the world is getting back to work, then governments can back off the income gap measures
and reserve banks can ease the monetary stimulus.
This may allow interest rates to rise, which they did post-announcement.
The 10-year U.S. Treasury Yield, one major indicator for interest rates, opened at 9.18
and closed at 9.58 after the announcement.
The rise in the TNX prompted a rally in financial stocks in particular, regional bank stocks.
The KBW Regional Bank Index rallied more than 16% after the announcement because higher
rates make lending more profitable.
And the vaccine could restart the economy by increasing the demand for credit.
Before the announcement, ultralow interest rates had put banks at roughly a 30% discount
to the overall market.
If interest rate rises continue, banks could see earnings and stock prices grow.
The economic recovery due to a vaccine could also increase the demand for oil and gas.
An expected uptick in travel and manufacturing caused oil to rise 11.5% after the announcement.
And companies like Parsley Energy, Devon Energy, and Marathon Petroleum experienced an almost
16% increase.
The success of these companies will rely heavily on the demand for oil and gas.
However, changes in global oil production or alternative energy sources could add or
remove fuel in the rally.
The ability to sustain this rotation likely depends on the success of the vaccines.
Poor testing performance, approval delays, or distribution hurdles could hamstring the
recovery.
Keeping a close eye on vaccine news and how the markets react can help you formulate a
strategy to harness a potential rotation.
Thanks for watching.
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