Go 'overweight' cyclicals, UK set to benefit the most from vaccine news, Credit Suisse says

In a nutshell, said level of efficacy was "much higher" than many of the Swiss broker's clients had been looking for, meaning that infection curves could be "smoothed", thus lowering the risk of a widespread third lockdown in Europe, they said.

Among other things, that meant it was now "relatively easy" to see the S&P 500 hitting the 4,000 point mark by end-2021 with the UK set to be the largest beneficiary, as 33% of its market cap derived from Covid-impacted sectors.

It also meant that governments did not need to be as spendthrift in the knowledge that fiscal stimulus would not need to be sustained.

For investors meanwhile, it meant that they would be able "to look through the V for the most affected sectors and start to value these areas (life companies, banks, travel & leisure) off normalized earnings."

A case in point, even after what some were labelling as a 'rogue rally' during the previous session, cyclicals were still only discounting Purchasing Managers Indices at about 58 points, which correlated to GDP growth of approximately 2.8%, versus the 4.6% jump in GDP that Credit Suisse had penciled-in.

On normalised estimates for earnings, the sectors in Europe that were "cheap" - in terms of EPS and price-to-book multiples - had high correlations to infections and were therefore best positioned, included: Transport, Diversified financials, Airlines, Mining and Financials.

In the US, the best 'vaccine plays' were Energy and Insurance.

The sectors which had outperformed as infections rose and should now be sold were: Pharmaceuticals, Food producers and Household products.

Within the same research note, Credit Suisse also upgraded budget airlines to 'overweight', citing valuation, adding that with a vaccine, regulators might allow lenders to pay dividends earlier.