In discussing yesterday's market action, overnight Rabobank's Head of Macro Strategy Elwin de Groot, writes that following the vaccine-inspired rally, "the market seems to have reached a delicate balance now where on the one hand, many investors are willing to long beyond the temporary resurgence of the virus as there is ‘light at the end of the tunnel’, whilst others remain concerned that the upcoming months could still prove rather challenging. This balance was well-illustrated by the performance in the S&P 500 yesterday, where the market opened lower, then regained almost fully the opening losses but then slipped again towards the end of the trading session. Yes, with the S&P only a whisker from its all-time high it is obviously ‘risk-on’, but somehow if feels different."
This point was on full display this morning when in the third consecutive good vaccine news released since Pfizer's covid news last Monday, in which the company followed up with an increased effectiveness estimate (from 90% to 95%) which should make the company's application for emergency US authorization be accepted smoothly, the stock response was lukewarm at best, with futures now having faded the entire post-update spike higher.
This same point was touched upon by Bloomberg's market live blog, which points out that "the shock value from incremental progress on Pfizer’s vaccine is understandably less than last week’s initial announcement, and it seems reasonable to expect that the ultimate market impact today will be relatively limited. After all, views are already coalescing around the idea that a vaccine will be fairly widely available by next spring, so in a sense the capacity to surprise has started tilting towards bad news on that front."
That said, and as we have warned repeatedly in recent months, a vaccine is one thing, widespread adoption - especially in a country where just 46% of Americans said they will be willing to take the first available vaccine without observing side effects first - is something entirely different. Here's Bloomberg on this transition to actual implementation of the vaccine:
This being said, it is reasonable to think that a prospective return to normalcy has not yet been fully priced, particularly in the spreads that I have talked about in recent weeks -- stuff like the Russell versus the NDX, etc. Moreover, I suspect at this juncture the public is going to be as interested in the safety aspect of a vaccine as its effectiveness; a straw poll of some friends suggested quite a bit of variance in the enthusiasm to be front-of-the-queue to get inoculated. As such, it’s nice to see headlines referring to the safety aspect of the Pfizer drug, though the CEO hinted as much at a conference yesterday.
This may explain why the market is now shrugging off any incremental vaccine - with both stocks and yields below pre-announcement levels - and why any incremental move higher in stocks will now be contingent on a credible plan of just how these multiple vaccines are actually administered to a skeptical population.