# Why investors should ‘let dust settle’ after Dow soars 1,200 points on Pfizer vaccine news

Read: BioNTech and Pfizer say their COVID-19 vaccine candidate is 90% effective, a much higher benchmark than anticipated

The news lifted equities around the world. The Stoxx 600 Europe Index
SXXP,
+3.98%
jumped 4%.

See: Here are the winners and losers in Europe from Pfizer vaccine news

“It is worth letting the dust settle after today’s big moves. There are risks to every rally,” said Lindsey Bell, chief investment strategist at Ally Invest, in a note.

“And while we believe the vaccine news is a huge positive for the market, there are a lot of unanswered questions.  One of those questions is how long it’ll take a vaccine to become available to the masses. We could still be months from the end of the pandemic, and U.S. COVID cases are surging,” she said, in a note.

That doesn’t mean a rally was unwarranted.

The reaction to the vaccine news “properly overwhelmed the latest efforts to handicap the size and timing of a U.S. stimulus package,” said Christopher Smart, chief global strategist and head of the Barings Investment Institute, in an email.

“Even as rising case numbers have triggered modest news restrictions in the U.S. and Europe, the base case remains that vaccines and improved treatment will bring the pandemic under control enough to allow economic activity to recover during the first half of next year,” he said. “It may or may not be this particular drug, but others are still in the pipeline. ”

But some investors think market participants might be getting ahead of themselves, looking past economic uncertainty that hasn’t been fully dispelled despite election clarity and prospects for an effective vaccine.

“The vaccine result clearly raises hopes that a return to normality is within touching distance, and while that is extremely positive for markets and businesses, we should be mindful that the economic impact of the pandemic is still being felt around the globe,” said Laith Khalaf, analyst at U.K. brokerage A.J. Bell.

“Often the initial knee-jerk response of markets to big events, positive or negative, is an overreaction, which is tempered over time,” he said.

Khalaf said investors should be prepared to “drip feed” money into the market on dips, but shouldn’t be hasty to entirely discard safe-haven assets, which may have become “bloated” holdings in some portfolios, altogether.

The Dow Jones Industrial Average
DJIA,
+4.10%
surged, revisiting record territory for the first time since pre-pandemic days in February, and the S&P 500
SPX,
+2.22%
was on track for its first record close since early September. The Dow remained up by around nearly 1,200 points, or 4.2%, in afternoon trade, while the S&P 500 advanced 2.3%. The Nasdaq Composite
COMP,
-0.51%,
more weighted toward stocks that have been boosted by the economic patterns created by the pandemic, slipped into negative territory, down 0.4%.

Investors pushed up shares of companies that have been among the biggest losers of the pandemic — airlines, cruise-ship operators, movie-theater chains — and dumped the biggest winners, like work-from-home stalwart Zoom Video Communications Inc.
ZM,
-16.21%
and smart-exercise-equipment maker Peloton Interactive Inc.
PTON,
-17.78%.

The long-suffering S&P 500 energy sector surged 15% to lead the way higher, with financials the next biggest gainer with an 8.5% rise. The highflying tech and communications-services sectors were toward the rear, rising 2.1% and 1.5%, respectively, while the consumer discretionary sector brought up the rear with a 0.3% rise.

Those moves are in keeping with calls over the last few months to add some value or cyclical stocks, which could shine as the economy improves, to portfolios, Bell said. Meanwhile, there might still be a good long-term case for tech, “but it may not outpace the rest of the market like it has since March,” she said.

Traditional havens like Treasurys and gold sold off sharply. The U.S. dollar
DXY,
+0.55%,
however, bounced back in volatile trade after initially selling off.

The dollar’s bounce is interesting, given that it’s initial weakness was in line with investors dumping assets usually perceived as safe to jump into racier assets like stocks, and commodities.

“It would appear that bargain hunters have swooped in and snapped up the relatively cheap dollar. It is possible that some traders are taking the view that if an approved COVID-19 vaccine is brought to the market, the Fed would rein in their extremely loose monetary policy,” said David Madden, analyst at CMC Markets, in a note.

And there’s also the possibility that positive news on the vaccine front, and the accompanying stock-market rally, will cool the drive for another round of heavy pandemic relief spending out of Washington, analysts said. Prospects for another large round of spending were already in question with Democrats appearing unlikely to take control of the Senate.

That could be a problem, according to some analysts, with rising COVID-19 cases in Europe and the U.S. seen threatening the global recovery. Several European countries have put in place tougher restrictions, while the number of new, daily U.S. cases has hit a series of records.

“In the meantime, rapidly rising case and hospitalization levels underscore a growing fundamental risk to equity and other risk asset prices if a fiscal deal is delayed or is underwhelming in magnitude,” said Lauren Goodwin, economist and multiasset portfolio strategist at New York Life Investments, in a note.

For now, however, policy makers might have some breathing room after a stronger-than-expected October jobs report, which were also seen tamping down prospects for a significant spending package. Goodwin said she remains “constructive” on the market, but sees the potential for “near-term speed bumps.”

“What might change this story is the resurgence of COVID infections and, even more importantly, hospitalizations,” Goodwin said. “Both are rising as the weather cools, and already contributing to deterioration in the service sector and in small business employment. A rapid deterioration in health and economic circumstances could prompt further — or faster — fiscal support.”

Barings’s Smart also cautioned that the pace of next year’s recovery still depends on a U.S. fiscal response, “which will be more difficult with divided government and a Republican party finding its bearings in a post-Trump world.

“It may make political sense for both sides to rush the package through in the ‘lame duck’ session of Congress, especially since government funding next to be extended beyond early December,” he said. “But in any case, the size of U.S. fiscal stimulus next year is unlikely to surprise on the high side and that remains a risk. ”