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UPDATE 2-Vaccine news catapults investors' economic-recovery bets

Mon 9th November, 2020 4:45pm
(Adds further comment, market activity)
    By Tom Westbrook and Lewis Krauskopf
    SYDNEY/NEW YORK, Nov 9 (Reuters) - News of an effective
vaccine against the novel coronavirus is fueling bets that a
global economic recovery will buoy wide swaths of the market
that have struggled under nearly nine months of the COVID-19
    Pfizer Inc  PFE.N  said on Monday its experimental COVID-19
vaccine was more than 90% effective, a potentially major victory
in the fight against a pandemic that has killed more than a
million people, battered the world’s economy and upended daily
    Pfizer and its German partner BioNTech SE expect to seek
U.S. authorization this month for emergency use of the vaccine,
raising the possibility of a regulatory decision as soon as
    Investors piled into banks stocks, airlines and other
economically-sensitive companies that had been battered by
months of coronavirus-led lockdowns and travel bans, pushing
major U.S. stock indexes to fresh record highs, while havens
like gold and the Japanese yen sold off and the U.S. Treasury
yield curve steepened.
    For months, many investors viewed the development of an
effective vaccine against COVID-19, which has killed 1.2 million
people globally, as the most important catalyst for healing the
global economy and bringing about the next major shift in
financial markets. 
    The prospects of a working vaccine sometime in the next few
months could force investors to reevaluate a range of recent
bets, from how big of a fiscal stimulus lawmakers may need to
provide to whether the Federal Reserve will keep interest rates
near historic lows for as long as previously expected. 
    It may also dent the allure of the big technology and
momentum stocks, whose revenues have proven durable during the
pandemic. Some of those huge stocks, such as
 AMZN.O , were underperforming on Monday. 
    “I think this really takes two big uncertainties - the
health impact of COVID and the economic impact of COVID - and
creates a pathway now that I think investors can see to progress
and to the restoration of our health and the economy,” said Jack
Ablin, chief investment officer at Cresset Capital Management.
    To be sure, obstacles remain before achieving broad
protection against the coronavirus.
    Pfizer is waiting for more complete safety data before
seeking emergency U.S. approval for the vaccine. Should the
vaccine be authorized, logistical challenges potentially could
undermine distribution while many Americans carry skepticism
about vaccines that could prevent widespread inoculation.
    “There’s a long road ahead still," said Nigel Green, the
chief executive of deVere Group, in an note to investors. "I
would urge investors to remain optimistically cautious and avoid
the ‘buy everything’ mindset."
    Investors have anticipated that an effective vaccine could
be a catalyst for industries that have been crippled by economic
shutdowns designed to control the coronavirus pandemic. Those
include airlines, cruise ships, hotels, casinos, all of which
were surging on Monday, in addition to economically-sensitive
sectors such as energy, financials and industrials.
    Many of those groups fall into the "value" segment of the
stock market, which had significantly lagged its "growth"
counterparts this year. On Monday, that trend ran in reverse,
with the Russell 1000 value index  .RLV  recently up over 5%,
while the Russell 1000 growth index  .RLG  gaining only 0.5%.
    Paul Nolte, portfolio manager at Kingsview Investment
Management in Chicago, has in recent months been buying the
iShares Russell 1000 Value ETF  IWD.P  while reducing exposure
to the Technology Selector Sector SPDR Fund  XLK.P .
    “Technology has become the de facto, stay-at-home
conservative play," Nolte said. If the vaccine works, “there’s
the opportunity at least for people getting together again, and
that is beneficial to a lot of those industries that have
suffered through the last six months or so.” 
    Past rebounds in value have often come at the expense of
momentum stocks, according to research from Solomon Tadesse,
head of quantitative equities strategy for North America at
Societe Generale.
    One such move came during a three-month period in 2009, when
value stocks notched a 25% gain while momentum names lost about
30%, Tadesse said.
    Positive vaccine news, along with a globally synchronized
economic expansion and possible legislative gridlock stemming
from the U.S. election, "should mark a breakout point for Value
stocks, which have been beaten down due to COVID crisis,"
JPMorgan strategists wrote in a note Monday.
    Brian Jacobsen, senior investment strategist at Wells Fargo
Asset Management in Wisconsin, said ahead of the vaccine news
that industrials offered broad exposure to a rebound in
confidence in areas from building products to aviation.
    Some global investors had also set up plays before Monday
that would benefit from a potential shift in market leadership
that a vaccine could bring. 
    Shinji Naito at Japan's SPARX Asset Management, which has
$12 billion under management, hopes a vaccine could trigger a
payoff from shorts in stocks pumped up by the pandemic, such as
some technology firms, while helping long investments such as
realtor Tokyo Tatemono  8804.T , he said before Monday's news. 

 (Reporting by Tom Westbrook in Singapore and Elizabeth Howcroft
in London and Lewis Krauskopf in New York, writing by Ira
Iosebashvili; Editing by Vidya Ranganathan, Sam Holmes and
Edward Tobin)
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