Vaccine Release Increases Optimism For Battered Sectors
December 9 2020 - Team Stockal
While the novel coronavirus continues its rapid spread in the United States, stock markets have sharply recovered from their historic lows hit earlier this year, thanks largely to the economic stimulus measures and rising hopes of a vaccine. The upbeat momentum received an additional boost in early-November when major vaccine makers such as Pfizer (PFE), Moderna (MRNA) and AstraZeneca (AZN) reported strong results from the trials of their COVID-19 vaccine candidates.
To put things in perspective, Wall Street’s main indexes — S&P 500, Dow Jones Industrial Average and Nasdaq Composite — have risen 3-6 percent since November 9, 2020 when Pfizer and its German partner BioNTech (BNTX) reported their vaccine to be more than 90 percent effective against the infectious disease. The companies were the first in the country to report the positive data, while Moderna and AstraZeneca followed suit later with strong results from their trials.
While a few of the companies have already applied for emergency use in a few countries including the U.S., the United Kingdom gave its approval to the vaccine developed by Pfizer to be deployed countrywide.
Amid these developments, investors rotated out of safe plays and ‘stay-at-home’ stocks into sectors that were battered due to the virus-related restrictions. Shares in sectors such as airlines, transport, cruises, holidays, restaurants, hotels, real estate, theaters, and energy, among others, witnessed renewed investor interest. It would be a good time to look at returns by these sectors in this brief period. And as we head into 2021, where more companies are slated to announce data from their vaccine trials, investors could well be hoping for an end to the pandemic.
Leading the pack among major airlines is American Airlines, rising nearly 25 percent from the time the vaccine news was announced by Pfizer. Delta and Southwest Airlines have returned between 8 and 19 percent between this period. At a sub-index level, the Dow Jones US Airlines Index (DJUSAR) has returned more than 30 percent in the past one month, as per CNBC.
The vaccine developments instilled optimism among investors that higher inoculations will boost commuter travels, boosting revenue for the sector. Airlines in the United States have, as such, stayed afloat during the pandemic period largely due to major capital raisings, support from the government via the CARES Act and lower costs, as per this report. The sector will be on investors’ radar, going forward, as more upbeat developments surface globally.
Shares of energy firms have been the highlight of the recovery in shares after the vaccine news. With crude oil prices seeing their worst this year and dropping into the negative region earlier this year, the news has pushed investors to bet on rising fuel demand as economic activities resume globally. As per this report, there’s more upside likely for energy stocks into 2021 based on their cyclical nature, resumption in flights, and cheaper valuations, among others.
One of the biggest gainers has been Halliburton Company, up about 35 percent, followed by ConocoPhillips and Kinder Morgan. Heavyweights such as Chevron Corporation and Exxon Mobil Corporation have also risen 19 and 15 percent, respectively.
Among the marquee names in the hotels and resorts sector, the likes of MGM Resorts (MGM), Marriott International (MAR), Hyatt Hotels (H) and Intercontinental Hotels Group (IHG) have risen 9-21 percent, followed by Hilton Worldwide (HLT) and Choice Hotels International (CHH). The Dow Jones US Hotels Index has also risen about 21 percent in the past one month.
Hotel room occupancies had crashed to multi-year lows during the year, severely hitting their revenues and forcing companies to cut costs and shut down properties in popular vacation spots. But, the news around vaccine progress has boosted stocks in the sector due to hopes that more people will make business and vacation travel plans.
In the list of renowned real estate names, shares of Simon Property Group (SPG) led the charts in healthy returns for investors. Its stock is up nearly 19 percent in under a month, followed by CBRE Group (CBRE), Alexandra Real Estate Equities (ARE) and D.R. Horton (DHI) with gains of 10-13 percent.
Real estate, especially the commercial segment, took a huge hit this year as companies moved to remote working or work-from-home solutions to curb the spread of the virus. With the increased chances for a vaccine, investors are betting on people returning to their workplaces in cities across the country.
Movie theater stocks have witnessed some rebound, except for market leader AMC Entertainment. Shares of the largest multiplex operator in the United States are down about 7 percent, while The Marcus Corporation and Cinemark Holdings have gained 10-14 percent. The Marcus Corporation owns two divisions — Marcus Theatres and Marcus Hotels & Resorts, while Cinemark has about 533 theatres and 5,974 screens in the United States and Latin America.
Cinema chains have faced multiple blows this year. Lockdowns forced theaters to remain shut, while in areas with eased restrictions, customers chose to stay at home and catch up on their entertainment. Amplifying the problem for the sector were major Hollywood studios choosing to release their latest movies on OTT platforms such as Netflix and Amazon’s Prime Video, among others. Going forward, investors may anticipate some footfall to return, but the prospects of studios coming back to theaters in a big way is cloudedgiven the unabated spread of the virus in the U.S.
While vaccine developments have shown the light at the end of the tunnel, the news has also gone on to punish or stall the upbeat momentum of those who cashed in during the pandemic period. Technology stocks, online retailers, cloud computing and others such gainers have all lost their momentum since the announcements. The likes of Zoom (ZM), Peloton (PTON), Microsoft (MSFT), Amazon (AMZN), Teladoc Health (TDOC) and Shopify (SHOP), among others, while still in the positive terrain, have taken a backseat in terms of their sharp upward moves.
In A Nutshell
In a nutshell, The developments around the vaccine have raised expectations of a resumption to the normal from the ‘new normal’, but analysts do caution about the timeline, production volumes, and widespread inoculations of the vaccine. Investors may weigh that against the rapid surge of infections in the country as well.