Pfizer’s vaccine dominates the market
Abraham George Macro View
Positive vaccine results and a high probability that Biden will make it to inauguration day has created big moves in asset prices in opposing directions. When trillions of new money has been pumped into the economy through extraordinary fiscal and monetary measures, cash was already being devalued for asset prices. The visibility of a fully open and functioning economy has given the extra shot in the arm for markets around the world.
Let’s look this in perspective. Many scientists hoped for 75% effectiveness with a vaccine. Dr. Fauci said that 50% to 60% is acceptable. But now Pfizer claims that their vaccine is 90% effective according to trial data. Pfizer and BioNTech said that the results marked “a great day for science and humanity”.
So there has been massive rotation in sectors and asset classes. Airlines and cruise liner stocks went gangbusters while many of the technology stocks that assisted work at home facilities took a beating. As we have been arguing for a long time bonds were due for a big change in direction. We may be at the start of a major trend change there. US treasuries doesn’t look as safe and stable as it once did. With a smell of inflation brewing up in the system interest rates could be headed higher.
Equities
We have had an unusual and exceptional day of trading yesterday. From the Oct 30th low the S&P 500 was up 14% yesterday. While the momentum is showing up this rate of change is not sustainable. The Dow was up by 1610 at the open and for every 14 stocks that was up only one stock was down. Is this a blow out climatic rally? At yesterday’s highs , inter-market non-confirmations exist between many indexes. Currently only a move below the Oct 30 low at 26,144 in the Dow and 3234 in the S&P 500 can question the validity of this up move.
Bonds
We have been stubborn about our bond views and finally it is proving right. Yields yesterday made it to a new 7 month high. There is more to prices moving down and the next immediate target could be the Mar 18 low at 167.05.
Euro
As expected, the Euro made some retracement after making a high of 1.1920. It should soon find support close to 1.1780 to 1.1800 and start to move higher again.
Gold
Gold made a very sharp reversal yesterday and has spoiled the chances of a further rally. Only a move above 1965 can change the bearish outlook. There is minor support at 1835 but a break below could lead to 1765.