Making sense of the markets this week: November 16

Photo by Nataliya Vaitkevich from Pexels

Each week, Cut the Crap Investing founder Dale Roberts shares financial headlines and offers context for Canadian investors. 

The stock markets cheer the vaccine news from Pfizer

Pfizer’s vaccine announcement is certainly the big story of the week, just as the U.S. election was the story last week. 

On Monday, Nov. 9, U.S. pharmaceutical company Pfizer announced that their COVID-19 vaccine is 90% effective. That is, the study showed the vaccine was able to stop 90% of infections. That efficacy rate is far superior to the expectation that a vaccine might only be 50% to 60% effective, and it led to incredible optimism in that we might have one of the solutions to help us get to the other side of the pandemic. There’s hope that we might get life back to “more normal.” 

On stock markets around the world, nearly $2 trillion traded on the positive COVID vaccine news. 

Canadian stocks soared on Monday, increasing by 2.7% at one point midday, before settling for the day with a 1.2% gain. The gains were led by the hard-hit financials, REITs and energy stocks. The gains continued into Tuesday and Wednesday with the TSX Composite up 3% after the close on Wednesday. 

The S&P 500 in the U.S. was up 2%, while developed markets were up 4.7% after the close on Wednesday. Emerging market indices were flat for the same period. 

The great stock rotation

Many analysts and fund managers have been anticipating the great stock rotation for many months. As we have discussed in this space many times, stay-at-home stocks have been driving stock market returns. The great rotation would mean that more monies will be directed to those hard hit sectors, where companies were forced to close or operate at reduced capacity. That includes airlines and cruise lines, hospitality (hotels, resorts and casinos), mall and office REITS, plus the dine-in restaurant sector. 

And with the potential for widespread economic growth, financials, energy and other cyclical sectors could see better times ahead. 

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