Wall Street Close: Stocks rally amid stimulus/vaccine optimism, strong earnings from AMZN and GOOG

It was a strong day for the US stock market; the S&P 500 closed 1.4% higher, rallying back to the north of the 3800 level again. Equity market bulls will have all-time highs at around 3870 in their sights this week. The Nasdaq 100 and Dow Jones Industrial Average both finished the day with gains of around 1.6%. The VIX fell back beneath the 27.50 mark.

Market commentators have cited a number of positive catalysts as behind Tuesday’s strong equity market performance; US stimulus hopes are growing again as the Senate voted in favour to open a debate on budget reconciliation (a process that would allow the Democrats to pass stimulus spending without Republican support) and haggling between Senate Republicans and the Biden administration gets underway. Vaccine news was also positive on Tuesday, further boosting sentiment, while Alphabet and Amazon both continued the recent string of stronger than anticipated US tech earnings releases.

Vaccine latest

Russia’s Sputnik V Covid-19 vaccine was 91.6% effective in a Phase 3 trial and caused no serious adverse events, according to a peer-reviewed paper published in the Lancet. Moreover, the vaccine is equally effective in those over the age of 60. Tuesday’s data suggests the vaccine is likely to be able to gain regulatory approval in the EU and access to this jab might help the country speed up its lagging vaccination efforts; though the EU has expressed a preference for vaccines made domestically or in the UK or US, EU member state Hungary has already approved and begun distributing the Sputnik vaccine and other member states are likely to follow suit.

Elsewhere, according to an Oxford Academics pre-print paper, the Oxford University/AstraZeneca vaccine showed efficacy of 76% after a single dose from day 22 to 90 following vaccination. Modelling analysis reportedly showed that the protection provided by the jab did not wane during this initial three-month period. Meanwhile, efficacy was boosted to 82.4% with 12 or more weeks to the second dose. The paper suggested that the vaccine is likely to have a substantial effect on the transmission of the virus with a 67% reduction in positive swabs among those who had been vaccinated. Oxford Academics conclude that giving a large proportion of the population a single dose of the vaccine with a second dose after three months is an effective strategy for reducing disease.

Earnings

Amazon and Alphabet (Google’s parent company) both reported earnings immediately after the closing bell. Starting with the former; Amazon posted blowout earnings, with Q4 2020 EPS coming in at $14.09 versus consensus expectations for $7.23 and revenue for the quarter coming in at $125.6B, above expectations for $119.7B. The company announced that Jeff Bezos will move to the role of Executive Chair and Andy Jassy will take over as CEO. Turning to the latter; Google also posted healthy beats on top and bottom lines, with EPS coming in at $22.30 versus expectations for $15.90 and revenue clocking $56.9B versus expectations for $53.13B. AMZN shares are choppy in after-market trade despite the strong report as markets digest the implications of Jeff Bezos stepping down, while GOOG shares are up over 5%.

Strong data from these two tech behemoths will further add to the recent string of strong earnings releases that have underpinned risk appetite as of late; according to IBES Refinitiv data cited by Reuters, more than 80% of the earnings reports released from S&P 500 companies so far have beaten expectations and 97% of reports from technology companies have beaten expectations.

The game stops for GameStop

The retail investor fuelled rally in GameStop appears to have come to an end; GME shares plunged 60% amid heavy trade on Tuesday, with share prices dropping to $90 as retail investors rushed for the exit. Short interest in the stock has fallen to 53% of the stock's float, from 140% last week, said Tom Hayes, founder and chairman of hedge fund Great Hill Capital LLC in New York. “Everyone's rushing for the same narrow exit and trying to get off margin, and you have a lot of weak sisters that are coming out of the stock” said Hayes, who concluded that the “squeeze is over”.