Markets

Dow surges more than 800 points in biggest rally in 5 months after positive Pfizer vaccine news

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Dow and S&P 500 hit record highs after a Covid-19 vaccine is found 90 percent effective — Here's what experts are watching

The Dow Jones Industrial Average and S&P 500 jumped on Monday as investors cheered trial data from drugmakers Pfizer and BioNTech indicating their Covid-19 vaccine is more than 90% effective. Shares of airlines and other travel-related stocks posted the biggest gains.

The 30-stock Dow closed 834.57 points higher, or 2.95%, to close at 29,157.97 for its biggest one-day gain since June 5. The average hit an all-time high earlier in the session, rising nearly 5.7%, or more than 1,600 points at one point. The S&P 500 popped 1.2% to 3,550.50 and also reached an intraday all-time high. The small-cap Russell 2000 index gained 3.7%. However, the Nasdaq Composite closed lower by 1.5% at 11,713.78 as traders rotated out of high-flying technology names that outperformed during the pandemic into more beaten-down value stocks.

Those losses in Big Tech weighed on the broader market as the session went on, leading the Dow and S&P 500 to close well below their highs of the day.

The vaccine announcement was seen on Wall Street as a sign that the pharmaceutical industry may soon have a viable way to control a disease that has derailed the U.S. economy for much of 2020 and has killed more than 230,000 Americans.

"I think that the rally is justifiable. I think we're going to start a new discussion, and the discussion is what's America going to look like post Covid," said CNBC's "Mad Money" host Jim Cramer. "If you think about where we were last week, where we felt that there was very little chance to be able to stop this thing, now suddenly we have hope."

The 90% effective rate from Pfizer and Germany's BioNTech was better than what the market was expecting. Dr. Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases, has said that a vaccine that was 50% to 60% effective would be acceptable.

Travel, restaurant and hospitality companies that saw their equities swoon in the spring as Covid surged had some of the strongest rallies on Monday following Pfizer's announcement.

"It sort of captures the imagination," said Tom Martin, senior portfolio manager at GLOBALT, about the vaccine's 90% effective rate. "You can now start imagining that, at some point in the future, life returns to normal. People go back outside, they don't have to wear masks ... and the economy reopens."

"That's why you're seeing those stocks that were so horribly beaten down come back," Martin added.

Reopening stocks jump, stay-at-home trade falters

Shares of cruise-operator Carnival Corp. rocketed higher by 39.3%, Southwest Airlines jumped 9.7% and the Walt Disney Company popped 11.9% as investors bet a vaccine may allow more vacationers to attend its many amusement parks.

Bank stocks also rallied on hopes of a quicker return to normal economic activity. JPMorgan Chase and Bank of America gained 13.5% and 14.2%, respectively. Citigroup advanced 11.5%.

The so-called stay-at-home trade struggled. Zoom Video traded 17.4% lower and Amazon slid 5.1%. Netflix dipped 8.6%. Teladoc Health dropped 13.7%.

"From an investment perspective, the most important implication of the news on the vaccine is you might finally see the rotation into value and small caps, it's happening today but it might actually have some legs," said Ed Keon of QMA.

Monday also marked the first trading day after NBC News projected that former Vice President Joe Biden won the 2020 presidential election against incumbent President Donald Trump. The call came four days after Election Day and amid close counts in several battleground states.

Wall Street hoped the victory for Biden would reduce the odds of a drawn-out election fight, even as Trump refused to concede. Many traders had put on bets for market volatility in November and were unwinding those positions, helping fuel a rally.

Democrats are projected to keep their House majority, although Wall Street was watching closely as Senate control is still in limbo. Both of Georgia's Senate races are likely going to runoffs slated for early January.

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—CNBC's Patti Domm and Tom Franck contributed to this report.