As Stimulus Hopes Dwindle, Investors Cling to Pfizer Vaccine Instead

Markets are currently playing to the expectation that a viable COVID-19 vaccine seems to be on the horizon. But positive news in that regard could also mean a smaller—or a nixed—stimulus deal.

Stocks jumped on Monday's news that pharmaceutical company Pfizer's effort is "more than 90 percent effective in preventing COVID-19."

Pfizer, in collaboration with Germany's BioNTech firm, expects to apply for Emergency Use Authorization from the U.S. Food and Drug Administration (FDA) in the third week of November "after the required safety milestone is achieved," the company said.

Vaccine developers in Russia also announced today their vaccine proved to be 92 percent effective, with post-registration trials set to begin mid-November.

Democrats had pushed for a $2 trillion rescue package, including support for state and local governments facing layoffs. Senate majority leader Mitch McConnell has other ideas, arguing Congress should pass a smaller and highly targeted package.

The vaccine news comes shortly after the U.S. breached 10 million coronavirus cases on Monday.

With millions still out of work, and companies in badly-hit sectors floundering, the mood in the market is mixed.

"For me, at the moment the market is front running the best case scenario with the vaccine trial," Michael Hewson, chief market analyst at CMC Markets told Newsweek.

"My biggest concern is the pressure to approve these drugs will cause unintended consequences in the long-term."

Hewson's view is that the vaccine story is outweighing some concerns about the potentially disruptive handover of power from Donald Trump to President-elect Joe Biden in Washington.

Investors are looking past a potential gridlock in the Senate after Georgia's elections, which would limit what any Democratic government could do in terms of stimulus, he says.

"If the vaccine is as good as they say it is they may not need [stimulus]," Hewson continues. "The sentiment is that the vaccine could well be a significant game changer."

Few politicos on Capitol Hill are anticipating another coronavirus relief package will get approved over the next few months during Congress' lame-duck session.

Negotiations over more economic aid have stalled time and again between Democrats and the Trump administration in the months before the election. Many lawmakers blamed the failure to strike a deal on hyperpartisan tensions flaring before a major—and extremely polarizing—presidential contest.

"The best form of stimulus we can hope for is to reopen the economy," Randeep Somel, fund manager at M&G Investments, told Newsweek.

"Any vaccine that comes into place now will be an incredible boost for the wider economy and markets," he continued. "The data that Pfizer provided is nothing short of phenomenal. They couldn't have asked for much better data than that."

Somel also notes that while companies are struggling without government support, if the vaccine puts the world in a position where sectors that have been shut down by the pandemic can reopen again, that will no longer be required.

Craig Erlam, senior market analyst at Oanda, wrote of the breakthrough in an email: "[It's] the first time in months that optimism is driven by the prospect of permanent economic reopenings and a return to normality, as opposed to emergency stimulus measures and a booming pandemic-proof tech sector. It's far healthier for these markets in the long term."

Pfizer vaccine
Pfizer stock surged higher on November 9, 2020 prior to the opening of Wall Street trading after the company announced its vaccine is "90 percent effective" against Covid-19 infections. The news cheered markets worldwide, especially as coronavirus cases are spiking, forcing millions of people back into lockdown. KENA BETANCUR/AFP via Getty Images