Dow, S&P 500 Close At All-Time Highs: What's Next For Stocks Following Coronavirus Vaccine Rally?

The Dow closed at 29,950.44 while the S&P 500 closed at 3,626.91 after Moderna Inc MRNA said its coronavirus vaccine has been more than 94% effective in preliminary clinical trials. The latest positive vaccine news comes just a week after Pfizer Inc. PFE said its vaccine candidate has been 90% effective.

Investors are hopeful that the extremely good news on the vaccine front could mean significant economic normalization could start happening in 2021. But with the S&P 500 already up more than 60% from its March lows, determining just how much upside remains in coming months may be difficult.

Bullish Momentum: One of the biggest driving forces of the 2020 market rally has been unprecedented government stimulus, and most investors are expecting another stimulus package in the near future.

Brian Price, head of investment management for Commonwealth Financial Network, said near-term momentum is to the upside, and the recent rotation into value stocks is a positive development.

“The path of least resistance for equities seems to be higher at the moment as favorable vaccine news, along with less uncertainty regarding the election, is proving to be a positive catalyst in the near term,” Price said. “It’s encouraging that we’re seeing a rotation from growth and momentum-oriented stocks to value and cyclical names.”

See Also: Moderna Analysts On Positive Coronavirus Vaccine Data, Revenue Potential

Long-Term Outlook: Once the economy has fully rebounded, investors will likely shift their attention to the inflationary impact government stimulus actions will have on the value of the dollar. The Federal Reserve has indicated it doesn’t intend to raise interest rates until at least 2023, but a spike in inflation rates well above 2% could potentially force the Fed’s hand.

Tigress Financial analyst Ivan Feinseth said investors shouldn’t be concerned about interest rate hikes at this point, as rising interest rates are an indication of a healthy economy.

“I still think that’s a ways away, but the vaccine news is good. However, it’s going to take some time to ramp up production and vaccinate everyone, so they’re still talking about a return to normal sometime in early 2022 with a dramatic improvement in the situation along with the economy starting in early next year as the pandemic hopefully subsides while a vaccine ramps up,” Feinseth said.

Benzinga’s Take: Interest rate hikes and inflation concerns are likely years away at this point. The biggest near-term concerns for investors are the severity of the coronavirus wave this winter and the size and timing of the next economic stimulus.