What the market reaction to the Covid vaccine news tells us about the “new normal”

Markets have surged today. No, it’s not because Joe Biden won the US election, it’s because we’ve had news that a Covid-19 vaccine might be coming around the corner much sooner and much more effectively than most of us had thought. A vaccine developed by US drugs giant Pfizer and Germany’s BioNTech SE prevented more than 90% of symptomatic infections in a trial which involved “tens of thousands of volunteers”, reports Bloomberg.

Apparently, if the “data hold up and a key safety readout Pfizer expects in about a week also looks good” then we might be on the way to having a full-blown vaccine. Emergency authorisation could be granted by US regulators in the third week of November. Meanwhile the European Medicines Agency already has the vaccine in “rolling review”. If these results hold up, then it’s also good news on the effectiveness front – the initial vaccines were expected to only work on 60%-70% of individuals. So 90% is a lot better than anyone had hoped. There are a lot of caveats at this stage, as you’d expect. But the long and the short of it is this: there’s most definitely light at the end of the tunnel now, and for once it’s not an oncoming train.

So how did markets react? Well, the sheer exuberance of the moves does show you just how deeply entrenched the idea of the “new normal” – where we all work from home permanently, never take holidays, and rarely put our noses outside of the door – had become. Companies that had been hit hardest by lockdown all surged. So travel stocks surged by 30-odd percent in many cases. Oil rocketed – up around 9% at its high point of the day. Meanwhile, the beneficiaries of lockdown – the Pelotons and Zooms of this world – took a hit, with their share prices seeing double-digit drops.

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Does this mean we’re going to swap the house for the office and go back to the old days right away? I doubt it, but I think it does show that a lot of the negativity towards “human-facing” industries might have been overdone.

Meanwhile, “safe haven” assets also took a battering. The Japanese yen and the Swiss franc were lower. Gold, silver (and platinum, interestingly) all fell hard. investors don’t want to be in safe assets when things get exciting. There’s a bit more to it than that though. The yield on the ten-year US Treasury crept higher. Precious metals don’t like higher interest rates, they prefer lower “real” rates. If interest rates rise faster than inflation, precious metals will take a hit. Hence the slide today.

Over the longer run, I’m not convinced that will continue. An ongoing rise in US Treasury yields won’t be tolerated by the Federal Reserve for long (why do you think the Bank of England just promised to print a load more money to ease Rishi Sunak’s latest blowout?) and in any case, if we really do get to put Covid to bed earlier than expected, then we’re likely to see a bit of a boom in 2021.

Indeed, the other day, an old friend of MoneyWeek’s, Jim Mellon, was telling Merryn all about how we could be about to embark on a 21st century version of the Roaring 20s. You can find out more about that in our 20th anniversary video. We recorded it last week and put it out on Thursday evening - it’s now looking remarkably prescient in some ways. Check it out here if you haven’t already.