Vaccine can be a powerful word. It's worth 14 points in Scrabble (42 on a triple word square) and, last week, it was worth a whole lot more than that to financial markets.

On Monday, a pharmaceutical company and a biotech company announced preliminary trials of their vaccine show it may be 90 percent effective, reported Financial Times. The revelation conjured tantalizing visions of a future in which virus precautions are unnecessary and life returns to normal.

Around the world, pandemic-fatigued populations cheered and markets rallied. CNBC reported:

"The Dow was up nearly 3 percent, while Nasdaq fell 1.5 as laggard sectors like energy and financials outperformed tech. Stay-at-home plays…were sharply lower, but airlines rallied 16 percent. The S&P energy sector, still down 45 percent this year, was up more than 14 percent, and financials were up 8 percent."

As demand for risk assets, like stocks, increased so did bond yields. In the United States, the yield on 10-year Treasuries rose to 0.97 percent. Rising long-term interest rates caused analysts to speculate about the possibility of inflation and stagflation (rising prices during a period of weak economic growth), reported Barron's.

Mid-week, enthusiasm moderated. While investors remained confident a vaccine could lead to economic recovery over the longer term, concerns about the shorter-term took center stage. Markets retreated a bit as investors mulled:

• Weaker-than-expected consumer sentiment. In November, consumer sentiment has declined by 5.9 percent month-to-month and it was off by more than 20 percent year-to-year. Sentiment is an important measure because consumer spending is a major driver of U.S. economic growth. When sentiment declines, people may spend less.
• A surge in coronavirus cases. The number of daily cases has increased by more than 70 percent nationwide since the beginning of November. Eighteen states are at risk of reaching full hospital capacity, reported NPR.
• New pandemic restrictions. As holidays approach, many cities and states introduced or re-introduced restrictions intended to slow the spread of the virus. The measures could slow economic recovery.
• No progress on new stimulus. If good news about a vaccine throttles political appetite for additional stimulus, small business owners could be in trouble. In 2019, small businesses employed almost 60 million people – 47 percent of working Americans. A new Goldman Sachs survey found "…more than half of small business owners (52 percent) have stopped paying themselves in a bid to keep their businesses afloat and four in 10 (42 percent) already have begun laying off employees or cutting worker pay," reported Axios.

Market volatility is likely to persist. Stay calm and don't let short-term events jar you from your long-term financial goals.

Best regards,

Womack Investment Advisers, Inc.