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‘It’s Difficult To Fade’: As Markets React To Vaccine News, ‘Quant Quake’ Risk Comes Calling

“It’s difficult to fade this move as global risk markets should rally more on what is truly a remarkable breakthrough on the vaccine front,” AxiCorp’s Stephen Innes said Monday, following Pfizer’s announcement that the company’s jointly-developed COVID-19 shot has an efficacy rate above 90%.

“A lot of today’s price action makes sense. The tech-heavy Nasdaq has underperformed, while industrial names are making the most of it,” Innes added, noting that Russell 2000 futures came into the cash session limit up.

Early in the day, Nomura’s Charlie McElligott flagged the likelihood of “tectonic movement” and dispersion.

The analyst commentary is comin’ in hot, as they say. “The results are at least as good as the best-case scenario that the market could have hoped for in recent weeks,” Deutsche Bank’s Robin Winkler said, adding that the efficacy rate is crucial. “This is extremely important and should give the market confidence that Pfizer’s candidate offers a breakthrough in terms of reaching herd immunity at some point next year,” Winkler remarked, adding that “there is a non-linear relationship between efficacy and the vaccination coverage required for herd immunity.”

In simple terms, the higher the efficacy, the lower the herd immunity threshold. Winkler went on to quantify things. “Assuming an R0 of 2.5, 90% efficacy implies that governments would need to reach vaccination coverage of about 60% to reach herd immunity,” he remarked. Apparently, that’s doable next year.

“[Pfizer and BioNTech] have said they should be able to produce 1.3 billion doses — enough to vaccinate 650 million people — by the end of 2021,” Bloomberg reminds you. “Only 50 million doses are expected to be available in 2020.”

Global equities were already at record highs on Biden optimism. The vaccine news will catalyze another leg to the upside.

Now, one rather glaring question is this: What happens to a market that has, for years, relied on secular growth favorites tethered to the “slow-flation” environment when Pfizer has just delivered a deus ex machina? (And the literary nerds among you will call that a misnomer given that good vaccine news was expected, but it gets the point across.)

Kevin Muir, formerly head of equity derivatives at RBC Dominion and better known for his exploits as “The Macro Tourist,” weighed in via a note to subscribers on Monday in which he warned on the possibility (however remote) of a quant quake.

“This morning’s vaccine news has caused a violent shift within the stock market [with] ‘new economy’ stocks getting hammered while ‘old economy’ names are flying,” Kevin said. “Be careful buying that high-tech-stay-at-home-momentum stock because it is down ‘too much’,” he added, cautioning that “my suspicion is that [Monday] morning’s violent moves are symptomatic of market participants that are well offsides. And whenever you get market players hurting this much, crazy stuff happens.”


11 comments on “‘It’s Difficult To Fade’: As Markets React To Vaccine News, ‘Quant Quake’ Risk Comes Calling

  1. Bob says:

    This is clearly good news. However, at best this puts things back to where they were in February. The slow-flation environment was exacerbated by the pandemic, it was not created by the pandemic. ‘Fixing’ the pandemic doesn’t alter the decade long narrative that underlies ‘slow-flation’. I expect a week or so of narrowing between growth and value and the like, and then the realization that we still have central bank liquidity as the only engine behind the economy. The only possibility of a change to the narrative would be an unlikely outcome in Georgia.

    • dayjob says:

      Yep, we will likely still be far behind where we were in February given the structural damage that has and will continue to accumulate until the vaccine is fully distributed (assuming this is indeed the silver bullet). This will give Republican senators one more reason to slow play virus relief even as the virus rampages across the country. My prediction? Pain.

    • runamok says:

      Yeah, not like rates are going to up, the Fed balance sheet is going to shrink, or that COVID is suddenly in the rear-view mirror.

      Yet, the statements in the post from the pros are emphatic. This could be the catalyst for the year-end rally.

  2. Anymouse says:

    Isn’t there a saying, “Buy low, sell (um, something)”?

  3. runamok says:

    Another day like this and XLE might touch it’s 200 DMA.

  4. 60% vaccination rate for herd immunity with a 90% effective vaccine. Now the question is how do we get 60% to take the vaccine? Prior to the election less than 50% of Americans said they would get it if available. Does anyone believe Trump will encourage his supporters to get the vaccine so we can rebuild the economy under a President Biden?

    • Ispymina says:

      Those who don’t get the vaccine still have a chance at being part of herd immunity by just getting covid and not dying.

    • jyl says:

      Imagine America in mid 2021. Everyone who is willing to be vaccinated will have been. But these are not “blocking vaccines” – they don’t prevent the virus from replicating in the upper respiratory tract for a while, they just prevent the virus from spreading to the lower respiratory tract and causing serious disease. Meaning, a vaccinated person is still able to get infected, its just that his or her Covid will be very mild if not asymptomatic.

      (Caveat: above is what I believe based on the monkey data, it hasn’t been demonstrated in humans, and the phase 3 trials aren’t to confirm or disprove it; with monkeys, you can vaccinate then deliberately infect them, take daily swabs of the upper tract, then euthanize and autopsy them to investigate the lower tract, while we can’t do that with humans, unless maybe you’re a Yighur in China).

      So, getting back to America in mid 2021. A couple hundred million people are walking around, knowing they are vaccinated thus pretty much safe from symptomatic Covid, and probably not so motivated to social distance because, what’s in it for me? Bars, restaurants, venues, etc will all be open for business and packing ’em in because, they have to if they’re going to survive. Hardly anyone wearing masks because, we’re ‘Muricans. And the virus is quietly ripping through this vaccinated population, its just that no-one notices or much cares. Remember that without social distancing, the R-naught is like 4-5.

      Now imagine you’re the anti-vaxer in this crowd of exhaling, infected, maskless people. And you are not protected by the vaccine you refused to take. You’re probably not wearing a mask or taking any precautions, because you think it’s all a hoax anyway. What’s your chances of getting through the year without becoming infected?

      It won’t be a Darwin situation overall, because the infection fatality rate is low and getting lower as treatment improves. But for the older or medically vulnerable vaccine refuser . . . I think the number of 60+ yo hardcore Trumpers might actually dip next year.

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