Equity index futures skyrocketed Monday when news of a successful testing phase for a Covid-19 vaccine hit the tape in the early morning hours. The pair of companies working together on the study, Pfizer and Germany based BioNTech, announced that their vaccine had tested 90% effective in its ability to prevent Covid-19 in a sample size of a little less than 100 trial patients.

Reuter’s reported that “The 44,000-volunteer study was initially designed for a first interim analysis of whether the vaccine was working after 32 participants developed COVID-19.” After that, researchers reduced the sample pool to just 94 patients at the behest of U.S. regulators. Questions as to how effective the vaccine will be in the long-term remain unanswered.

Optimism for the new drug’s success is running high. U.K. officials announced that they have already placed an order for 40 million units of the vaccine, with 10 million of those to be delivered before the end of the year upon approval by regulators. However, the current study remains incomplete, so the likelihood of mass distribution of the vaccine before the end of the year remains to be seen.

The Downside

News of the potential vaccine was widely viewed as a saving grace for an economy that’s been hanging by a thread for the bulk of 2020. As the global surge of new virus infections continues to rise, financial markets in the U.S., Europe, and Asia took the news and ran with it early on. By the time the 8:30 CT opening bell rang on Wall Street, the Dow Jones Industrial Average, S&P 500, and Russell 2K had all hit new all-time highs.

The euphoria surrounding the vaccine announcement began to wane not long after the U.S. stock market opened as the reality of the situation started to set in. With the unemployment rate continuing to drop in the face of increased Covid related restrictions, fears that a new round of government stimulus could be further delayed took the wind right out of the bull’s sails.

Things are looking better, but we’re not entirely out of the woods, and a significant number of Americans are still putting a lot of hope in further government aid just to get them through the winter.

The Upside

The Nasdaq took the brunt of the beating that came after the early rally, as investors migrated away from the tech-heavy index and into energy and consumer discretionary based companies. 

While the late day price action might have you thinking about calling blowoff tops in some markets, here are a few obvious things to consider. Even though the Dow closed nearly 1,000 points from its highs, it still settled at an all-time high and in the upper half of its trading range. The same goes for the Russell. And, you can’t call a blowoff top in the Nasdaq for the simple fact that it failed to breach its all-time high made back in early September.

The S&P closed in the lower half of its range, but a popular school of thought believes that overnight highs have a less likelihood of holding than highs made during regular trading hours. And please note, the Dow, Russell, and S&P all printed their respective highs during the overnight session.

On the other hand, there’s also the possibility that all four indexes are following false breakout patterns and could continue trading sideways until there’s less uncertainty in the market.

The bottom line is, headlines are ruling the tape right now, and the case for bull market to continue seems stronger than the alternative. With the likely possibility of power in Washington remaining balanced, the only policy announcements we should expect to move the markets will be Covid related. Anything else would be an anomaly.