Market reaction to Pfizer vaccine UK approval and Tesco’s decision to repay relief puts pressure on rivals

“Many people will be surprised at the muted reaction from the stock market to the UK becoming the first country in the world to approve the Pfizer covid-19 vaccine for widespread use,” says Russ Mould, Investment Director at AJ Bell. “The FTSE 100 and FTSE 250 indices have both shrugged their shoulders to the news, almost as if they are saying ‘so what?’.

“This is the stock market functioning in the way it has always done. Share prices move as investors anticipate what they think will happen in the future, so you could argue that the vaccine news has already been priced in.

“So far in November we’ve seen a near-15% jump the FTSE All-Share, which is a widely used benchmark for the UK stock market, as investors have bought companies which were previously hurt by the pandemic and could benefit from the reopening of society thanks to a vaccine.

“That’s clear evidence that a lot of good news was expected by the market and plays to the adage ‘it’s better to travel than arrive’ when it comes to buying shares for an expected news event.

“Now the vaccine has become reality, investors’ attention will naturally shift on to the next thing which could be the aftermath of Brexit, whether Joe Biden can push through his policies as the new US President, when the next giant wave of stimulus will come from the US, and so on.

“There is also the issue of the vaccine distribution to consider – how quickly can it be done and will those who haven’t had it remain fearful of mixing with others in public? There are still many hurdles to clear and many things for the market to digest.

“Fundamentally the vaccine approval is positive and while markets haven’t moved today, it does set a brighter tone for 2021 in terms of achieving economic recovery.”

Tesco

“The decision by Tesco to pay back business rates relief represents a significant U-turn and will crank up the pressure on its supermarket rivals to follow suit.

“This gesture comes at a fairly sizeable cost – so it can’t be dismissed as meaningless – and it may well be that the boardrooms of its peer group are cursing the move. After all, if they follow suit, unlike Tesco they won’t be able to claim the brownie points for going first.

“Previously the grocers had argued they were entitled to take advantage of this tax break, despite being able to operate throughout the pandemic, due to all the extra costs they incurred and the pressures they faced in feeding the nation.

“Tesco will argue that today’s decision is less a reflection of a change of heart and more a story of a change of circumstances as the backdrop has stabilised.

“It may be that the company is seeking to pre-empt any action from a cash-strapped Government – which has seen supermarkets book big profits and in some cases increase dividends to shareholders despite the impact of Covid-19.

“For shareholders themselves, it will hardly feel like their interests are being prioritised. There is now likely to be plenty of speculation about who goes next.

“Public companies, as they always do, will face greater scrutiny and it’s not just the supermarkets –Kingfisher-owner B&Q and discount retailer B&M, which recently declared a special dividend, were also able to stay open while taking advantage of the relief.

“A situation where listed firms pay back cash and private ones keep their heads down and do not would hardly feel satisfactory.”

These articles are for information purposes only and are not a personal recommendation or advice.