European stocks have pulled back from eight-month highs reached yesterday on news of promising results from a second Covid-19 vaccine candidate.

US markets closed at fresh highs last night on the back of the claims by Moderna that its vaccine had proven to be almost 95% effective in late stage trials.

Aidan Donnelly, Head of Global Equities with Davy, said markets were forward looking by their nature, but he said investors may be displaying some "irrational exuberance". 

"It's likely going to be another while before the vaccines get approved and we haven't seen the safety data on them," he told Morning Ireland.

"Then there's the whole issue of getting them supplied and distributed around the world and the final bit is to convince people to take them. It could be the middle of next year before you see a significant inoculation programme," he said. 

"We're all looking for some glimmer of hope and the markets are catching onto that," he added.

Mr Donnelly explained that there was a 'rotation' of stocks at play, with investors selling out of stocks that were deemed to be strong performers during the pandemic into those parts of the market that were largely abandoned by investors.

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"Up to this point, the focus of markets was very narrow. It was limited to one group of stocks, mostly in one sector - the tech sector. Large-cap, big, well-known names were driving the markets and others were left in the wilderness."

"What we're seeing now is investors rotating back into those stocks and looking at them with renewed interest - areas like the energy sector and financials," he said.

Jeffrey Halley, Senior Market Analyst, Asia Pacific, with OANDA pointed out that the so-called work-from-home side of the market was still holding its own with all three Wall Street leading indices finishing higher last night.

"With Covid-19's biblical comeback crashing over Iran, Russia, all of Europe, the US and Mexico, and others, we will all still be working from home for some time to come, vaccine or no vaccine," he said.

"Restrictions continue ramping up in Europe, with the Swedes the latest to join in. The situation in the United States is particularly worrisome, with new state-wide restrictions seemingly every day."

He said all of that pointed to further policy easing in December from both the US Federal Reserve and the European Central Bank.

"Awash in a world of increasing torrents of zero per cent money and bond backstopping from the Fed, a weaker US Dollar and further asset price appreciation seems inevitable. The arrival of Covid-19 vaccines appears to be making the "buy everything" trade literally "buy everything", he concluded.