S&P 500 Index to surge towards 3900 in 2021 on an effective vaccine - UBS

FXStreet points out that Pfizer and BioNTech announced that their vaccine has shown a 90% efficacy rate in its Phase 3 trial. The news helped power a significant rally in global stocks. The S&P 500 was up 1.2%, after hitting a record high earlier in the session. Despite Monday's significant rally, economists at UBS continue to believe that stocks will move higher from here. 

“The market reaction underlines our recent message that investors need to diversify for the next leg, toward more cyclical parts of the market that have lagged behind in 2020, and away from big tech and the primary stay-at-home beneficiaries. We have said that the next leg up in stocks would be driven by an end to US political uncertainty and sustainable mobility gains backed by a vaccine. Developments in the past week support our view.”

“The better-than-expected efficacy data increases the chances of achieving our upside scenario, in which social activity fully normalizes by 2Q21 and developed countries' GDP returns to pre-pandemic levels by end-2021.”

“The S&P 500 is moving closer toward our central scenario target of 3,700 by June 2021. However, in our upside scenario, we would expect to see the S&P 500 trading at 3,900 by June. Monday's data reduces the downside risk of no effective vaccine being developed in 2021 while making the upside scenario look more likely.”

“Planning market entry can be difficult when stocks hit record highs due to timing concerns. But reaching a record high in stocks is no obstacle to further gains. Since 1960, one-year returns after the S&P 500 has hit a high have been 11.8%, slightly more than the 11.3% average.”