The Dow Jones Industrial Average rose 834 points, or 2.95%, to 29,157, leaving it not far from its intraday record. The S&P 500 rose 1.2% to 3,550, reaching an intraday record, even as the tech-heavy Nasdaq Composite fell 1.5% to 11,713.
Sentiment was overwhelmingly bullish, with the 10-year Treasury yield ending the day up to 0.93% from 0.81%. That’s higher than its previous post-lockdown high of 0.90%, hit in early June, when optimism on the economic recovery was surging. The 30-year Treasury yield rose to 1.7% from 1.6%. The price of crude oil rose 7.9% to $40 a barrel.
Pfizer (ticker: PFE) and BioNtech (BNTX) said their joint Covid-19 vaccine is 90% effective in patients that haven’t contracted the virus, an indication that the Food Drug Administration may approve use of the vaccine this year.
The companies say they will distribute more than 1 billion doses by some point in 2021. The vaccine requires two shots, so that might only be enough for 500 million people, but even if so, it would be enough coverage to move the process of reopening state economies significantly forward.
Pfizer rose 7.6% and the much smaller BioNtech rose 13.9%.
Joe Biden’s election as president solidifies the next administration’s commitment to getting a large fiscal-stimulus package done, although the Senate race is currently shaping up to yield a Republican-controlled Senate and a Democratic House. That is likely to lower the size of the spending bill, limiting the speed of the current economic recovery.
“News of 90% effectiveness of the Pfizer/Biontech vaccine candidate, potentially points toward a strong economy and sharp earnings rebound in 2021,” said David Donabedian, chief investment officer of Private Wealth Management at CIBC.
And although the economic recovery is slowing, it has already been more or less a V-shaped one, with gross domestic product recently running at about 95% of pre-pandemic levels. Recent economic data have been better than expected, helping the S&P 500 to rise 9.4% since Oct. 28.
“The huge rally over the last 5 trading sessions is all about expectations of lower uncertainty and volatility ahead,” said Donabedian.
At one point during Monday’s rally, the S&P 500 was up more than 10% for the past six trading days. Historically, when that happens, the index rises 20% on average for the next year, according to Keith Lerner, chief market strategist at SunTrust Advisory.
Reopening stocks took center stage, with United Airlines (UAL) up more than 19%. Darden Restaurants (DRI) gained 18.1%.
The gap between yields on shorter-dated and longer-dated debt increased, a shift that stands to benefit banks who borrow for short periods and lend to customers for terms that can span decades. The SPDR S&P Bank exchange-traded fund (KBE) gained 13.5%.
Betting markets show slightly higher odds—23% vs 9% earlier—that the Democrats will take control of the Senate, potentially makjng possible tougher bank regulations. So far, those concerns have not been enough to offset optimism about the economy,
Small and mid-cap stocks, which typically do well when the economy is gaining strength, outperformed large caps. The Russell 2000 and S&P 400 Mid Cap Index were up 4.2% and 2.9%, respectively. Both indexes have moved through critical price levels of $1,600 and $2,000, according to strategists at BayCrest Partners.
Optimism is surging at present. What’s next? More vaccine news and developments in the Senate race.