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Morgan Stanley's top cross-asset strategist pinpoints 3 areas of the market set to directly benefit from a successful COVID-19 vaccine — and explains why investors may be 'surprised' by the level of normalcy we can achieve

  • Pfizer announced on Monday that its COVID-19 vaccine was found to be more than 90% effective in preventing the virus.
  • Morgan Stanley's Andrew Sheets told Business Insider that a vaccine would set economic activity back to more normal levels than some investors anticipate.
  • Sheets also pinpointed three areas of the market set to benefit from the vaccine.
  • Visit Business Insider's homepage for more stories.

It's the moment everyone has been waiting for: Pfizer announced on Monday that its COVID-19 vaccine was found to be more than 90% effective in a final stage of clinical trials.

Everyone except perhaps firms that are beneficiaries of a stay-at-home environment, that is.

Investors fled stay-at-home stocks en masse. Amazon fell as much as 6%, Peloton was down as much as 25%, Zoom Video Communications dropped as much as 20%, and Netflix plunged as much as 9%.

Morgan Stanley Chief Cross-Asset Strategist Andrew Sheets has been warning of such a shift upon a vaccine discovery. He said as much during an October 2 episode of Morgan Stanley's "Thoughts on the Market" podcast, on which he called a vaccine the "single best marker for getting back to a normalized future."

He reiterated that sentiment in an October 27 interview with Business Insider.

"A vaccine makes people start to think: 'You know what? The second half of 2021, 2022, those could look more normal, and if the economy is looking more normal, do I really want to pay up so much for companies that benefit with abnormal?'" Sheets said.

Sheets added that he feared investors were too oriented toward a "new-normal" environment. He said he expected continued technology-related change more incrementally, but in the meantime, he said he believed consumer behavior would return to more of an old normal than had been priced in the markets.

He cited the past two recessions as examples.

"I do think the market here has often been surprised for the normalcy that follows," Sheets said.

"Coming out of 2001, the terrible terrorist acts of September 11, there was kind of an emerging connection of wisdom that would permanently change consumer behavior — people's willingness to go to the mall, people's willingness to go out and socialize in public — and that was true for a certain period of time, and then it changed: People actually did go back to more normal patterns."

He added: "After 2008 or early 2009 — 'this changes everything; people are permanently not going to want to buy a home because of what happened' — and it certainly took some time. There was a lot of lasting damage from that crisis. But people ultimately went back to consuming and wanting to buy homes."

Further, Sheets referenced Morgan Stanley consumer-attitude research showing pent-up demand and Americans' desire to do things like take vacations and eat in restaurants again.

3 areas of the market set to directly benefit from an effective vaccine

As investors begin to shift out of stay-at-home stocks, Sheets said he expected more beaten-down stocks that benefit from early-cycle economic activity to jump.

"I think that could benefit parts of the market that are currently cheaper and tend to be more cyclical," he said. "So that would be things like small caps, things like financials, some of the other cyclical sectors, I think, are the big beneficiaries there as people price in more normalcy."

These sectors were indeed surging on Monday. The Russell 2000 index rose as much as 5%, and financial stocks like JPMorgan, Goldman Sachs, and Visa were all up at least 7%.

Investors seeking exposure to cyclical, small-cap, and financial stocks might consider exchange-traded funds like the Vanguard Consumer Discretionary ETF (VCR), the iShares Core S&P Small-Cap ETF (IJR), and the Financial Select Sector SPDR Fund (XLF), respectively.

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