WATCH: European stocks rise on COVID-19 optimism
The FTSE 100 (^FTSE) climbed to a 5-month high, reaching levels not seen since early June. London’s bluechip index closed up 1.6%.
“The UK index, which had underperformed global and US indices badly since the initial round of lockdowns earlier in the year, has benefited from rotation into value stocks and away from growth and stay-at-home tech plays that had lifted the Nasdaq to repeated all-time highs,” said Fawad Razaqzada, a market analyst at ThinkMarkets.
British Airways-owner IAG (IAG.L) topped the FTSE 100 with a rise of 7.7%. The airline group has been one of the worst performers in recent months as demand for global travel has collapsed.
By the time trade finished in Europe, the S&P 500 (^GSPC) was up 0.8% in New York and the Dow Jones (^DJI) was up 0.2%. The Nasdaq (^IXIC) rose by 1.8%, reversing two days of underperformance for the tech-heavy index.
Analysts said the positive performance was still being driven by Pfizer’s announcement on Monday that a coronavirus vaccine it is jointly developing with Germany’s BioNTech had induced an immune response in 90% of cases.
UK health secretary Matt Hancock told parliament on Tuesday that the NHS could be ready to roll-out the vaccine by next month. In the US, Dr Antony Fauci, director of the National Institute of Allergy and Infectious Diseases, said high-risk Americans could be vaccinated by the end of the year.
“There is a feeling that this could move particularly quickly once a vaccine has been approved,” said Joshua Mahony, a senior market analyst at IG.
Hopes of a return to normality helped oil climb to a two-month high on expectations of increased travel as restrictions ease. Brent futures (BZ=F) and crude (CL=F) futures rallied as much as 3% on the day, although gains moderated once the US session began.
The optimistic mood was helped by bullish calls from Goldman Sachs. The investment bank raised its forecasts for both US and European stock markets, predicting a 16% rally for the S&P 500 by year end and a 10% rally for the European STOXX 600.
Goldman said in a note on Wednesday that European corporates could see their earnings per share jump by an average of 50% next year and 12% in 2022.
“This combination of growth acceleration and easy policy is particularly supportive for equities,” portfolio analysts at the bank said.
Banks, energy companies, construction firms, and car manufacturers were likely to be among the biggest winners, Goldman said.
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Chinese markets missed out on the rally. The Hong Kong Hang Seng (^HSI) fell 0.4%, the Shanghai Composite (000001.SS) dropped 0.5% on the mainland and the Shenzen Component (399001.SZ) lost almost 2%.
Optimism around the Pfizer vaccine has sparked a frenzy of trading activity around the world in recent days. Reuters reported that $2tn changed hands on stock markets around the world on Monday. Interactive Investor, the UK’s second biggest retail investment platform, said it recorded the busiest day in its history.
Investors have been dumping pandemic-resistant stocks in sectors like tech and instead picking up banking and other value stocks in anticipation of a successful vaccine.
“There is still a lot of hope about the potential vaccine by Pfizer, and sector rotation continues,” said Naeem Aslam, chief market analyst at Avatrade.