Yesterday, Pfizer announced impressive results from its Phase 3 COVID-19 vaccine trials. It expects to go through some safety protocols over the coming two weeks. That will allow the company to apply for emergency use authorization before the end of the month. This is also exactly what President Trump predicted in the pre-election debates.

The majority of stocks jumped on the news. That’s because a vaccine is the basic requirement for removing social-distancing guidelines. 

It will no longer matter whether one agrees with wearing a mask, practicing social distancing, vacating offices, opening or closing schools, or the potential for overloading the healthcare system. The question of whether so many precautionary measures were necessary or not will no longer be relevant. The introduction of a vaccine will render the argument moot.

It doesn’t even matter if the vaccine is safe. No one mentioned the difficulty of transporting doses at subzero temperatures yesterday. The whole reason politicians have been so insistent a vaccine is essential is it provides cover to walk back social distancing. The timing of the announcement, a week after the election, does beg the question of whether it is politically motivated.

Commentators have been eager to compare this pandemic to the 1918-1920 Spanish flu. The one thing they never seem to discuss is technological innovation.

The human genome was only first sequenced in 2003. It revolutionized the healthcare sector, and we are still only at the dawn of a new era. The pandemic offered a glimpse of the possibilities.

There has never been a vaccine for a coronavirus. Now there is, and it took only 10 months to develop and test. That’s nothing if not impressive.

Even though we’ve been waiting for a vaccine, the news that a successful one is finally within reach is the most important development in the market. The big question now is how all the debt taken on to pay for the lockdowns is ever going to be repaid. This quantity of debt has the capacity to be a drag on growth as we move further into the recovery.

The willingness of the Federal Reserve to support the market is more important than ever.

10-year Treasury yields are back testing the 1% level. The higher they rise, the more expensive it will be for the government to borrow money. There was a lot of talk in the media last week about mortgage rates hitting new all-time lows. That won’t last if Treasury yields keep rising.

Economists expect the government to run a multitrillion-dollar deficit next year. That’s regardless of what happens with a vaccine.

If the Fed doesn’t step in soon to buy bonds again, rising yields will start to affect the recovery. After all, many companies also rely on access to cheap credit to fund their operations.

A vaccine is indisputably good news. However, it’s not the only thing driving markets. Liquidity is what gets the gears turning.

Reliance on stimulus has not diminished. If anything, the stock market has become even more dependent on it. Consumers also still need help, with millions of people still out of work.

Borrowing costs also affect the technology sector. Many stay-at-home champions prospered because the pandemic gave them a one-time bump in sales. If lockdowns disappear next year, it will be harder for these companies to make money.

A big rotation just started, with money moving out of tech and into recovery candidates. Hotels, airlines, cruise companies, and the businesses that serve them are now leading.

A few months ago, many people thought they would all go bust. Today, the survivors will have access to more market share. They’ll need plenty of liquidity in the market to spur a robust recovery. 

All the best,

Eoin Treacy