Stock Market Update

The S&P 500 futures are rallying by more than 3% after Pfizer (PFE 40.95, +4.55, +12.5%) announced that its COVID-19 vaccine candidate achieved efficacy above 90%. Currently, the S&P 500 futures trade 127 points, or 3.6%, above fair value after already trading higher on news that Joe Biden was projected the winner of the U.S. presidential race. 

Conversely, the tech-heavy Nasdaq 100 have given up their knee-jerk pre-market gains and now trade 0.6% below fair value, as investors sell their technology winners that benefited from a reclusive economy. 

The prospect of a vaccine, however, has catapulted cyclical stocks and oil prices ($40.22, +3.09, +8.3%) and has fueled selling in the Treasury market, as investors rejoice that the economy can hopefully reopen and get back to normal. Note, the vaccine was this effective for people without evidence of prior infection and is being developed in collaboration with BioNTech (BNTX 111.77, +19.77, +21.5%). 

The selling in Treasuries, particularly longer-dated maturities, has sent yields noticeably higher in a curve-steepening trade that should disproportionately benefit the financial stocks. The 2-yr yield is up two basis points to 0.17%, while the 10-yr yield is up 11 basis points to 0.93%. The U.S. Dollar Index is up 0.1% to 92.29. 

As previously mentioned, the uplifting news strengthened a futures market that was already in good shape prior to the update. Presumably, the market was reacting positively to news that Joe Biden will be the 46th U.S. president, eliminating any election uncertainty and providing hope that Mr. Biden will advocate for less restrictive trade policy. 

Right now, the market is taking the vaccine news in stride and at face value since it bodes well for the earnings prospects of many cyclical companies. There is some talk, though, that a vaccine this early might convince Congress to hold off on stimulus or pass a smaller stimulus deal. 

In U.S. Corporate news:

• Pfizer (PFE 40.95, +4.55): +12.5% after announcing that its COVID-19 vaccine candidate achieved efficacy above 90% in first interim analysis from its Phase 3 collaborative study with BioNTech (BNTX 111.77, +19.77, +21.5%). 
• McDonald's (MCD 227.90, +11.34): +5.2% after EPS estimates and raising its dividend 3%. 
• Zoom Video (ZM 423.00, -77.11): -15.1% amid the positive vaccine news that has undercut many other technology stocks that benefited from the coronavirus.  

Reviewing overnight developments:

• Equity indices in the Asia-Pacific region started the week with healthy gains. Japan's Nikkei: +2.1%, Hong Kong's Hang Seng: +1.2%, China's Shanghai Composite: +1.9%, India's Sensex: +1.7%, South Korea's Kospi: +1.3%, Australia's ASX All Ordinaries: +1.9%.
  • In economic data:
    • China's October exports +11.4% yr/yr (expected +9.3%; last +9.9%) and imports +4.7% yr/yr (expected +9.5%; last +13.2%)
    • Japan's November Reuters Tankan Index -13 (last -26); September Leading Index +4.4% (last +1.8%)
  • In news:
    • The rally efforts were attributed to reports that multiple news outlets declared Joe Biden the winner of the U.S. presidential race, providing some welcome closure for global equity markets and some hope that the U.S., under a Biden administration, will have a less protectionist trade bias. President Trump has yet to concede the race.
    • China reported its best export growth in 19 months, although import activity was weaker than expected in October.
    • The Summary of Opinions from the Bank of Japan's October meeting showed shared support for keeping the bank's easing measures in place to aid the economy.

• Major European indices are surging along with U.S. equity futures. STOXX Europe 600: +4.8%, Germany's DAX: +5.5%, U.K.'s FTSE 100: +4.7%, France's CAC 40: +6.6%, Italy's FTSE MIB: +5.3%, Spain's IBEX 35: +8.2%.
  • In economic data:
    • Eurozone's November Sentix Investor Confidence -10.0 (expected -15.0; last -8.3)
    • Germany's September exports +2.3% m/m (expected 2.0%; last 2.9%) and imports -0.1% (expected 2.1%; last 5.8%)
    • Switzerland's October unemployment rate 3.3% (expected 3.4%; last 3.4%)
  • In news:
    • Gains were already significant, as global markets reacted to reports that multiple news outlets had declared Joe Biden the winner of the presidential race, yet they went into overdrive following the news from Pfizer and BioNTech that their COVID vaccine candidate was more than 90% effective for people without evidence of prior infection.
    • There is a Bloomberg report that suggests Germany might push the EU to hold off on imposing $4 billion of tariffs on U.S. goods in a bid to improve trade relations with a Biden administration.
    • The UK, meanwhile, is said to be entering a critical week for Brexit negotiations with the EU, which still face big differences of opinion with respect to the issues of a level playing field and fisheries.