Positive vaccine news lifts markets. Will surge last?
U.S. indexes briefly reached record highs on Monday after Pfizer Inc. revealed its developmental COVID-19 vaccine had been more than 90 per cent effective in preventing infection, but market analysts are preaching caution for the road ahead.
When investors received the news they'd been waiting for since COVID-19 first devastated their portfolios in March, they reacted as expected, with jubilation.
The Dow Jones Industrial Average shot up by 834 points, a near three per cent move, while the S&P 500 and S&P/TSX Composite Index each closed 1.1 per cent higher.
The biggest winners on the day had been, up until this point, the biggest losers. Energy stocks such as Cenovus Energy Inc, Vermilion Energy Inc. and Suncor Energy Inc. each surged between 20 and 30 per cent. Cruise line stocks such as Royal Caribbean Cruises Ltd. and Norwegian Cruise Line Holdings Ltd. each closed with single-day gains above 25 per cent and airlines such as Air Canada, up 28 per cent, followed suit. And for the first time in months, REITs were a hot commodity again.
“I don't know if some of these moves are fully warranted,” said Norman Levine, managing director of Portfolio Management Corp.
Levine is cautious because he suspects a high percentage of the returns were generated by short coverings. There's no reason, he said, for energy stocks to have rallied as hard as they did. He also wonders about whether investors have fully assessed the risk in travel stocks such as cruise lines, airlines, hotels and casinos.
The World Health Organization said Monday the vaccine could be rolled out in March to the highest-risk groups and by then, Levine said, these companies will have lost the winter travel season.
There is also uncertainty surrounding the vaccine.
Will it be approved?
If it is, will the rollout begin in March or will there be delays?
“It's great Pfizer is having great results, but it hasn't been approved yet, you don't know when it's going to be available, how many vaccines will be available or what's happening with the other companies. Let's be happy, but let's not get carried away,” said Levine.
Citi analyst Stephen Trent had some reservations about Air Canada's performance.
The vaccine news is certainly a positive signal for the company's medium-to-long-term outlook, but in the short-term, investors would do well to remember that the airline will only be operating at 25 per cent of its pre-pandemic capacity in the fourth quarter of this year.
“We're not going to wave a magic wand and be back to normal next week,” said Trent.