·Stocks fell Tuesday as momentum from Monday’s rally lost steam. The S&P 500 and Dow each declined, after both indices posted record closing highs a day earlier.
After Moderna’s (MRNA) released preliminary data Monday morning showing its vaccine candidate was 94.5% effective in preventing coronavirus infections, investors are set to watch to see whether equities follow a similar playbook as they did last week, when news that Pfizer’s (PFE) vaccine candidate was 90% effective in preventing COVID-19 first emerged. That announcement had sparked a knee-jerk rally in cyclical and value shares that unwound mid-week, but then reignited again on Monday after Moderna’s announcement.
“We saw such a positive reaction last week which then petered out as investors started to take account of all of those various question marks that still remain,” Seema Shah, Principal Global Investors’ chief strategist, told Yahoo Finance on Monday. “We’ll need to see a continuation of this kind of good news to keep this rotation going.”
“But I think that even if we take account of all the various question marks that are out there, next year still looks pretty strong,” she added. “Not only do we have a potential vaccine in play, but we also have all the central banks providing endless liquidity. We have fiscal stimulus on the cards and of course we have an economic recovery which either is going to be ongoing. So I think as investors look at this, there are a lot of reasons to have a pro-cyclical trade on. It’s just a question of maybe maintaining some caution as you move into that.”
Other strategists have also underscored the near-term risks to equities, while acknowledging the more sustained rally that may arise later next year. In a note Monday, Morgan Stanley strategist Mike Wilson said he expects the S&P 500 will be range-bound between 3,150 and 3,550 as the market grapples with rising new COVID-19 cases and restrictions, before jumping to 3,900 by year-end next year. In some of the latest new virus-related restrictions, California on Monday sharply rolled back reopening plans across the state, and Michigan announced a partial lockdown starting Wednesday and lasting for three weeks.