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Was the Market's Reaction to the Vaccine News Justified?

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When Pfizer announced the results of its COVID-19 vaccine, the market took off. The reaction does seem justified. The reported efficacy rate of 90% is the most surprising and encouraging news of all. After all, the flu vaccine is only 40-60% effective each year. According to the Associated Press, in the 2019-2020 flu season, the flu vaccine was 39% effective! Pfizer expects to achieve emergency use authorization by the end of the year and begin distributing the vaccine soon after that.

Over the last seven months, the market has been carried by tech stocks that have benefited from the acceleration of trends such as remote-working, increased usage of devices to consume media, online shopping, home improvement, and others. Most affected industries have not bounced back similarly. The vaccine news has sparked renewed investor interest in these industries, such as airlines, cruise ships, brick and mortar retail, and energy. The SPDR Energy Select ETF (XLE) went up 14.3% in one day. While it is starting from a low base, it is clear market participants are making a bet on a return to normal. Will the trend persist?

Of course, the vaccine still has to be approved, manufactured, and distributed. This uncertainty seems to have been reflected in stocks as they closed well off of their highs. However, this may happen quicker than some might think. On Squawk Box, former FDA Commissioner Scott Gottlieb expressed confidence that the most vulnerable populations could begin to be vaccinated in January. The market is ever forward-looking, and with this news, the market has more concrete hope of a return to normal to look forward to.

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