Game-changer is a thoroughly overused term, but the Monday morning stock exchange announcement from Pfizer truly fitted the bill.
A remarkable five per cent was put onto the FTSE 100 index that day, followed by further strong gains over the next two days.
The stock market always tells you the direction of travel for the world economy quicker than anything else, or anyone.
While we obviously won’t see those kind of daily gains continue and there will be red days, the general direction of markets from here through 2021 looks like it will be up, strongly.
Markets saw a dramatic rally on Monday after Pfizer and BioNTech revealed their Covid vaccine is 90 per cent effective
In revealing its Covid vaccine is 90 per cent effective, far outstripping the minimum approval level of 50 per cent, Pfizer signaled the beginning of the end of the pandemic that has wrecked lives and economies this year.
The phase three study results suggest other vaccine candidates are also likely to be effective. This has always been the only real way out of the crisis. While other measures just slow the pandemic down for a while, vaccines can end it.
There is still some way to go of course because rolling out a vaccine takes time but the endgame is about to begin, and the financial markets are making that clear.
With a 90 per cent effective rate, Covid is sure to be stamped out in places that are able to inoculate a majority of the population, allowing all economic activity to resume. The consensus seems to be that only 60 to 70 percent of a population need to be immune for the virus to completely run out of road.
This is very achievable given that in the UK for example, medics have been able to roll out flu vaccinations to many as 15 million people over a couple of months. The resources thrown at the Covid vaccination effort will be far greater.
From a business point of view, although we are still gripped by the pandemic and sitting in a second lockdown, companies can at last start investing, hiring and planning with a good degree of certainty that 2021 will see normality return.
Over in the US, in addition to the medical breakthrough, a hamstrung President coupled with economic stimulus measures could be the perfect tonic for markets next year.
With Joe Biden set to move into the White House hot seat unless claims of election fraud made by the other side stand up, investors have little to concern them on the political front.
The US election is heading for a courtroom showdown after Donald Trump’s Republicans claimed voter fraud had tipped the results in favour of Joe Biden
The fear in markets of left wing politics is well established, given rising taxes, more regulation and lower economic growth reliably come as part of the package.
Biden himself is more a centrist than left wing though, and even if some of those around him would like radical changes, the possible downsides to a Biden presidency from an investor’s point of view look unlikely to manifest themselves.
What is expected to be a Republican majority Senate can block the sort of big policy shifts that worry investors.
Should election fraud be proven and Donald Trump retains occupancy of 1600 Pennsylvania Avenue it would certainly throw a big angry cat among the pigeons politically, but it’s hard to see that scaring investors away from their stock portfolios.
With the major known problem in the world economy on track to ease, the risk to investors in 2021 remains as ever, a black swan event.
Should another one emerge you can be sure the stock market will be the first place to signal it, just as with the pandemic in February 2020.