US equities fell a bit back to earth overnight after Monday’s Pfizer inspired gravity-defying vaccine booster shot higher.

The global bond sell-off has extended further: US10Y yields up 4bps to 0.96%, German 10Y products up a further 3bps.

Equity markets are more mixed today as Monday’s Pfizer vaccine news fades while markets reassess. While the story was undoubtedly positive, investors may wonder to what extent markets will keep rallying given the known logistical challenges of distribution and still some hurdles for approval.

Equities were already near record highs. While the leisure industry particularly stands to benefit from a successful vaccine, it is not yet apparent that a vaccine will accelerate an economic recovery too much more than has already been priced.

And what is priced via the market calculus now becomes the million-dollar question for stocks.

Meanwhile, the US has reported more than 100,000 daily cases for seven consecutive days, raising the possibility of rolling lockdowns. Meanwhile, the ongoing standoff with the US President is preventing the President-elect’s transition team from securing federal resources as the Trump campaigns file more lawsuits to block the certification until all ballots can be verified.

In US equities, thematic moves and the rotation today were not as extreme as they were Monday.

While the overall market seems reasonably stable and balanced right now, it feels like Momentum/Tech/Growth wants to push lower as the Software’s move is all-inclusive. Cyclicals continue to outperform

Central Bankers have an unenviable task

You would not want to be a central banker speaking these days, would you? The rear-view mirror is clouded by the impact of the virus and uselessness of data.

Meanwhile, you can only see hope for the vaccine on the horizon, so it is hard to know what to say about it.

Speaking at Bloomberg’s Future of Finance virtual conference, Dallas Federal Reserve Bank President Kaplan does his best, saying Q3 and Q4 this year will be challenging. The first half of next year will be tricky – but after H1, things look somewhat brighter.

Still, though, he is not entertaining the thought of tightening just yet, leaving those discussions for once the US has weathered the pandemic.

And echoing a dovish view, despite the vaccine news, San Francisco Federal Reserve Bank President Daly is resolutely dovish, despite the vaccine. The Fed is discussing what more should be done, and what more might be needed, she said in an interview with Reuters, as she called for more fiscal support. The pace of growth ahead will likely be slower, but Fed policy can adapt to changes in the economy, she said.

Interest rate effect

Interest rates come back into play as the markets price Covid-19 vaccine news. So much of the equity market bounce this year has been based on the lower for longer mantra.

Risk has been able to price zero short-term rates and historically low long-term rates.

However, if efficient self-correcting markets start to price at higher interest rates, then perhaps the market will need an asymmetrical response from the FOMC to address the market’s newfound funding disadvantage.

For example, implied 3m money at the end of 2023, when the Fed’s current guidance ends, has increased 17bp in the last week, 7bp straight after the US election, and 10bp after the vaccine news.

The US 10y yield is at its highest point since the market dislocations of March. Of the 14bp nominal yield gain Monday, 7bp was real, and 7bp was breakeven. The speed limit for the most rate-sensitive sectors in S&P is 30bp a month. It might not be long before investors once again start to think about the influence of the rate on equity.

International market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi