Monday’s stock market reaction to new information was a rocket shot that collapsed, leaving long bearish tails on many stocks by the end of the day. That new information was the announcement by Pfizer (PFE) of results on a new COVID-19 vaccine with a 90% efficacy rate. Although many in the market were of the belief that a vaccine would be produced before the end of the year, the results of the 94-patient trial were an example of new information entering a market. There are 3 stages in this phenomenon, the original information shock catching many market participants off guard, absorption/acceptance of the new information, and finally application of the new information. Monday’s reaction was a massive short-covering rally that fizzled within minutes. Upon the news, in the pre-market, stocks gapped higher and by the official 9:30 am opening, many had found their highs for the day and were already in a downtrend. As an example of the effect, the S&P 500 index ETF (SPY) opened at 363.97 but fell to 354.56 by the close, as well as the Nasdaq 100 (QQQ), opened at 297.31 and closed at 288.59, both well off their highs. What happens when new information enters a market is this, there is an initial directional thrust, then a fade as the new information is absorbed, then the market usually reignites in the direction of the original thrust. Internally within the stock market, it is exhibited by sector rotation, where the market's edge (leading and lagging stocks) reacts to the new investment paradigm. During the process, the old investment paradigm is re-valuated and if found lacking the rotation will continue, if not it will reassert.
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