Weekly Market Digest: Vaccine Update Boosts ‘Physical Economy’ Stocks

Monday’s vaccine update from Pfizer sent shares of “physical economy” stocks rallying on hopes of a faster-than-expected economic rebound. Even energy firms posted sizable double-digit gains, as such a recovery would likely lead to rising demand for oil. Simultaneously, high flying “digital economy” stocks sold off sharply and ended the week lower, with safe-haven assets like bonds and gold also down.

Weekly Returns

S&P 500: 3,585 (+2.2%)

FTSE All-World ex-US (VEU): (+3.4%)     

U.S. 10 Year Treasury Yield: 0.89% (+0.06%)

Gold: $1,887 (-3.3%)

EUR/USD: $1.183 (-0.4%)

Major Events 

• Monday – The U.S. surpassed 10 million cases of COVID-19, as the disease continues to surge across the country.
• Monday – Preliminary data showed Pfizer and BioNTech’s vaccine was 90% effective at preventing COVID-19, which was significantly higher than most anticipated.
• Tuesday – The EU filed an antitrust complaint against Amazon, claiming it uses third-party vendor data to promote its own products.
• Wednesday – Georgia officials announced the state will perform a rare full recount of its presidential election votes by hand.
• Thursday – State governors and city mayors imposed additional measures to curb surging COVID-19 cases and hospitalizations.
• Thursday – President Trump signed an executive order banning Americans from investing in Chinese firms that support China’s military.
• Friday – New York City Mayor Bill de Blasio warned parents to prepare for in-person school closures.
• Friday – The Trump administration granted TikTok owner ByteDance a 15-day extension before it is required to sell the popular social media app.
• Friday – U.S. daily COVID-19 cases topped 150,000 for the first time, with hospitalizations also at an all-time high.

Our Take

A lot has happened since last Friday. The AP and most major news networks announced Joe Biden was the projected President-elect, although this was not much of a surprise with votes continuing to go in Biden’s favor in most battleground states. President Donald Trump is pursuing legal challenges, but at this point it seems unlikely any will be able to overturn the results. So barring a dramatic change in events, it appears Biden will take office in January as the 46th President of the United States. As we pointed out last week, the market reaction was largely positive, driven in part by the likely prospect of a divided government with Republicans maintaining control of the Senate.

Read More: How Would a Biden Presidency Affect my Pocketbook?

But the election is not what drove stock returns over the last five days — it was the coronavirus that retook center stage. The big news of the week came Monday, when Pfizer announced preliminary data showing its vaccine was 90% effective at preventing COVID-19, more than almost anyone expected. This led to an immediate selloff in high momentum technology stocks that have benefited from the remote work environment. More traditional “physical economy” stocks like retailers, travel and small cap companies rallied on the prospect of an economic rebound.

This is excellent news, but even in a best-case scenario, a return to normalcy is still many months down the road. With the virus surging and hitting records across the U.S., many states and cities are already imposing new measures to combat the spread. This will once again put pressure on “physical economy” businesses, particularly with hopes fading for any near-term fiscal stimulus. So at this point it is likely too soon to call an official end to the digital economy momentum trade, and more volatility should be expected in coming months.