To bridge the economy over to that vaccine, Congress needs to pass a fiscal stimulus bill. Still, stocks were rising.
The S&P 500 rose almost 1%, while the tech-heavy Nasdaq rose more than 1%. The 10-Year treasury yield rose to as much as 0.68%, as expectations for a fast economic have firmed up recently. Yields rise when prices fall.
Long-term treasury yields have been rising this week in part because of incremental bullishness on the economic and earnings recovery, but also because the treasury is issuing new bonds, putting supply pressure on the price. The yield has been heavily pressured over the past few months, dipping to 0.5% last week, as the Federal Reserve may increase the size of its asset purchasing program if yields rise too much, supporting the price. But the positive vaccine news, strong corporate earnings and new issuance is overwhelming that price support.
Enabling the positive sentiment Wednesday: Moderna (MRNA) - Get Moderna, Inc. Report has a $1.52B deal with the U.S. government to supply 100 million doses of a COVID vaccine. The stock rose 4.89% to $72 a share. “Overall, we believe the contract provides further confidence that Moderna can supply and produce vaccine at scale,” wrote Morgan Stanley analyst Matthew Harrison in a note.
Pfizer (PFE) - Get Pfizer Inc. Report also has deal with the government to supply hundreds of millions of doses in the near future. Russian president Putin says the country has the first vaccine ready, but is skipping phase three in the trial process, raising safety questions among experts. Overall, investors are positive on a vaccine hitting the market soon at this point, as many players are chipping in to provide vaccine to a globe starved for a COVID solution.
Cyclical sectors like oil, consumer discretionary and banking rose. Banks rose 2% as the yield curve has expanded aggressively in the past few trading days. Tech, which has a heavy market cap weighting in S&P 500, was helping index’s gain.
But before vaccine hits market, the economy needs more fiscal stimulus. Interest rates cannot fall much from here and small businesses and households need cash soon in order for consumer spend to be supported. Fiscal stimulus proved effective in May and June before a spike in cases hurt consumer confidence and caused states to pause reopenings. If too many businesses close, the road back to full employment will be a longer one.
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