One year on from ‘Vaccine Monday’

This week marks the first anniversary of a major turning point in the fight against the COVID-19 pandemic and the start of the economic recovery from the sharp setback at the start of 2020.

On Monday, November 9, 2020, Pfizer and BioNTech had announced that their vaccine was more than 90 per cent effective in preventing symptomatic cases of COVID-19. This major announcement fuelled optimism that the pandemic could come to an end sooner rather than later, and the UK became the first country in the world to authorise emergency jabs to its citizens on December 2, 2020, followed by the US on December 11. As news of the very strong efficacy results by Pfizer and BioNTech was released, there were sharp upward movements across the main international equity markets.

Some European indices immediately climbed by nearly 10 per cent and US equities also advanced, with share prices of airlines, banks as well as cinema operators, to name a few, registering the strongest gains compared to other economic sectors. Moreover, the price of oil surged by more than nine per cent on the prospect of heightened demand once economies were expected to begin to reopen from the strict lockdowns imposed earlier on in the year. As a result of the very important announcement by the two vaccine developers and the immediate response by the equity markets, November 9, 2020, became known as ‘Vaccine Monday’. Incidentally, the following Monday, the biotech company Moderna revealed that in a

late-stage clinical trial, its coronavirus vaccine was found to be 94.5 per cent effective in preventing COVID-19, which continued to fuel optimism on the strength of these two vaccines and their ability to bring an end to the pandemic.

Although there were initial signs of scepticism on the speed at which these vaccines could be distributed across the world given their storage requirements, it become evident that both effective vaccines were to be made available in the following months. This was an important milestone for an eventual economic recovery.

The rally experienced in early November 2020 was sustained well into the new year and throughout most of 2021 despite the occasional spikes in COVID-19 cases and the Delta variant in recent months.

Over the past 12 months, the main international equity markets rallied strongly to new record levels, with the EURO Stoxx 50 rallying by over 36 per cent and marginally outperforming the S&P 500 Index, which gained just under 34 per cent since Vaccine Monday. Meanwhile, the NASDAQ Composite in the US gained 38.2 per cent. Across the eurozone, France’s CAC40 surged by nearly 42 per cent, closely followed by Italy’s FTSE MIB Index (+41.2 per cent). The UK’s FTSE 100 Index was a relative underperformer as it ‘only’ gained 23.6 per cent over the past 12 months.

The performances across the various economic sectors depict a more interesting analysis of the manner in which the news of a successful vaccine was interpreted across financial markets. As the price of oil more than doubled over the past 12 months, it is not surprising to see the energy sector rank as the best performer within the sectors across the S&P 500 Index in the US. The financials sector was another very strong performer with a surge of just over 60 per cent, followed by information technology (+37.1 per cent), real estate (+36.5 per cent), and consumer discretionary (+32.3 per cent).

Within the European markets, the banking sector was the strongest performer with an upswing of close to 70 per cent, followed by the automobile industry (+55.5 per cent) and oil and gas (+52.9 per cent).

Owning shares in good quality businesses is the most profitable way of growing one’s wealth into retirement age

Although the US and European markets posted exceptionally strong gains over the past 12 months, there were instances when equity markets had their periods of volatility, especially when the Delta variant started to spread in a consistent manner and was widely seen as a potential threat to the economic recovery. Another factor that featured regularly among the risks to the continued rally across equity markets was the threat of hyperinflation.

Meanwhile, another piece of important news that once again came from Pfizer was announced last Friday, and is yet again being seen as a further important step in the fight against the COVID-19 pandemic. The US pharmaceutical giant announced that internal data showed that its oral COVID pill (when administered with a widely-used HIV drug) indicated an 89 per cent reduction in the risk of hospitalisation or death in adults who have been exposed to the coronavirus. This was hailed as a ‘game changer’ and the ‘end of the pandemic’ by some prominent commentators across the financial media.

Pfizer indicated that it plans to seek authorisation from authorities for the widespread use of this treatment later on this month. International equity markets continued to rally strongly following this important news, with the main beneficiaries being the ‘economic reopening shares’, most especially travel and tourism companies such as Airbnb.

The upswing in the share prices of most companies within the travel and tourism sector was also due to the news that the US had reopened its borders to vaccinated international travellers from 33 countries, thereby ending a 20-month travel ban. Meanwhile, the ‘stay-at-home names’ that had rallied strongly in 2020 at the start of the pandemic fell out of favour more recently and their share prices declined further as the news from Pfizer indicated the return to normality may be even quicker than expected.

Some weeks ago, another antiviral COVID pill jointly developed by Merck & Co. Inc. and Ridgeback Biotherapeutics was shown to reduce the risk of hospitalisation and death from the virus by 50 per cent. This was also hailed as an important step to end the pandemic. In fact, last Thursday, the UK regulatory agency recommended the drug ‘Molnupiravir’ for use in people suffering from mild to moderate COVID-19 symptoms. The UK’s approval was the first for an oral antiviral treatment for COVID-19 and the first for a COVID-19 drug that will be administered widely across the community. US advisers will be meeting on November 30 to review the safety and efficacy data of Molnupiravir and vote on whether this drug should also be authorised.

Although the future trajectory of international equity markets is always difficult to predict and will remain dependent on various factors, the scientific breakthroughs by the pharmaceutical and biotechnology companies around the world are providing a strong foundation for the economic recovery to be sustained in 2022 and beyond.

One of the very important lessons once again for the investing public over the past 18 months was to avoid succumbing to the short-term fear and uncertainty that engulfed the markets as certain events unfolded.

Although equity markets will always produce shocks on a periodic basis, the long-term trajectory of equity markets has proved that owning shares in good quality businesses is the most profitable way of growing one’s wealth into retirement age.

Rizzo, Farrugia & Co. (Stockbrokers) Ltd, ‘Rizzo Farrugia’, is a member of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report has been prepared in accordance with legal requirements. It has not been disclosed to the company/s herein mentioned before its publication. It is based on public information only and is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The author and other relevant persons may not trade in the securities to which this report relates (other than executing unsolicited client orders) until such time as the recipients of this report have had a reasonable opportunity to act thereon. Rizzo Farrugia, its directors, the author of this report, other employees or Rizzo Farrugia on behalf of its clients, have holdings in the securities herein mentioned and may at any time make purchases and/or sales in them as principal or agent, and may also have other business relationships with the company/s. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Neither Rizzo Farrugia, nor any of its directors or employees accept any liability for any loss or damage arising out of the use of all or any part thereof and no representation or warranty is provided in respect of the reliability of the information contained in this report.

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