Stock markets see big gains Monday on promising COVID-19 vaccine data from Pfizer

Stock markets soared on Monday after German pharmaceutical giant Pfizer said early data suggests its COVID-19 vaccine seems safe and effective, raising hopes that the world economy is now one step closer to getting back to normal.

Markets were already sharply higher on the U.S. election result when Pfizer said that data shows vaccine shots may be 90 per cent effective at preventing COVID-19, indicating the company is on track this month to file an emergency use application with U.S. regulators.

The vaccine candidate, known as BNT162, "has emerged as a front-runner in the tight race, and the latest data were encouraging, though logistical and supply chain challenges remain," said Cinney Zhang, a pharmaceutical industry analyst with Bloomberg Intelligence. 

Pfizer's shares gained 15 per cent. Its vaccine partner BioNTech did even better, up 25 per cent.

The companies said in a release early Monday morning that out of roughly 44,000 people in the Phase 3 trial of the vaccine, only 94 have contracted the virus, and there are no serious side effects reported so far. This "raises the hope that the patient demographics will be broad enough for an early approval," Zhang said.

Some say market is overreacting

Any economic recovery depends on checking the pandemic, and investors pounced upon the news. Pfizer's data is only preliminary and does not mean a vaccine is imminent. Getting the vaccine to billions of people will be a massive undertaking, even if it is approved.

But even the potential of an effective vaccine on the horizon was all investors needed to shake off some of their doom and gloom.

Shares in companies that have been hit the hardest by the virus, such as those in accommodation, travel and tourism, rebounded sharply. Air Canada shares gained 26 per cent to above $20 a share for the first time since June despite the airline reporting on Monday that its revenue fell 86 per cent last quarter because of the collapse in demand for flights.

While he said he was "cautiously optimistic" about what a potential vaccine would mean for the economy, CEO Calin Rovinescu said investors may be overreacting a little.

"I think that a word of caution has to be brought to bear before we get ahead of our skis here," he told analysts on a conference call. "The market sort of has gotten out ahead of everybody this morning."

'What we've all been waiting for'

But some investors think the optimism is perfectly justified.

Barry Schwartz, chief investment officer at Baskin Wealth in Toronto said while there is still much that's uncertain, he called the news a "game changer" and "what we've all been waiting for."

"No one should be dancing in the streets yet without a mask ... [but it] feels like someone turned the lights back on in the world," he said in an interview.

"I'm excited for the stock market, but I'm more excited for people to go out into the world again."

He said the gains in travel and leisure companies make perfect sense since they have seen such an unprecedented plunge in demand.

"The amount of money spent on travel and leisure is going to be out of control," he said.

The Dow Jones Industrial Average was up by more than 1,300 points or almost five per cent late in the trading day In Toronto, the S&P/TSX Composite Index was up more than 300 points, or about two per cent.

Interestingly, the one sector that was lower was technology, as big tech company stocks that have done very well in the pandemic gave back some of their gains. Netflix was down six per cent, Amazon was down by about three per cent, and video conferencing software company Zoom was down by 16 per cent, on speculation that booming demand for the company's services may soon drop from its current level.

"I still have three Zoom meetings today, that's not going away any time soon," Schwartz said. "Behaviours will change but great businesses aren't going away."

U.S. election outcome also helped

Markets were already buoyant about the result of the U.S. elections, which saw Democrat Joe Biden win the presidency.

"What Biden gives you is 47 years of track record that you can use to project the decisions making that he will make," said Dennis Mitchel CEO of Starlight Investments in Toronto. "But the Senate remained where it was, the House remained where it was so that was positive news for the markets."

The Pfizer vaccine news came as "jet fuel" on top of the election result, Mitchell said. "There is still potential for risk and resulting volatility. But right now, we look to be on a good path for the long term."

Many analysts expect trade tensions to de-escalate under a Biden presidency. Still, not all trade tensions are expected to vanish even if Biden rolls back some of the tariffs imposed by President Donald Trump on U.S. trading partners, especially China, in the past several years.

For now, investors seem inclined to shrug off Trump's refusal to concede and threats of legal action. With Republicans expected to retain their grip on a majority in the Senate, they are betting on continuity in tax, regulatory and other policies, analysts said.

Oil price gains $3 US

"Trump not conceding a loss is near-term noise looking to wrong-foot Biden at the start of his presidency, while Republicans in a position to not concede ground on legislation may continue to frustrate Biden's agenda," Mizuho Bank said in a commentary.

If Republicans remain in charge of the Senate, chances for a big package of economic aid are weaker, and the Federal Reserve will likely need to step up with more support, said Jeffrey Halley of Oanda.

"More easing is almost certainly on the way at December's FOMC meeting," Halley said, referring to the Fed's policy-making committee. "Looser monetary policy equals higher asset prices in a zero per cent interest rate world."

Despite rising infections and deaths from the pandemic, economies have continued to recover from the shocks of earlier shutdowns to combat outbreaks.

Biden has vowed to move decisively to try to counter the worsening coronavirus pandemic, which has sapped economic growth, trade and travel, as the U.S. and Europe face a troubling rise in infections. Even if the strictest lockdowns don't return in the United States, the worsening pandemic may dampen consumption and erase profits.

In energy trading, U.S. benchmark crude gained more than 10 per cent, or $3.16 US to $40.30 a barrel in electronic trading on the New York Mercantile Exchange. Brent crude, the international standard, rose $3.08 to $42.53 a barrel.