Our expectation, and the expectation of many forecasters, had been for vaccine candidates to report decent rather than spectacular efficacies, and for vaccines to begin to be deployed towards the end of 2020. As such the recent news has been a positive surprise when compared to the base case. Furthermore, the tail-risk of no immediately successful vaccine has in the past week been summarily dismissed, and the associated implications for markets have been profound. Firms which were uninvestable without the prospect of a successful vaccine have become once more subject to analytical scrutiny. As such the significant advance and rotation in equity markets makes sense:
- The firms most profoundly impacted by Covid-19, such as travel and leisure firms, have jumped enormously in value over recent days as they have become investable again
- Firms that we would anticipate performing well under a reflationary environment have also risen impressively, although not to the same extent
- Good-quality firms that will prosper under most scenarios (except one without a successful vaccine) have also performed well as the left-tail scenario has been cut.