What happened

The stock market is having a day for the record books on Monday. The Dow Jones Industrial Average opened at an all-time high, and the S&P 500 was up by 3.4% about 10 minutes after the market opened. And while it might come as a surprise to investors, the financial sector is shaping up to be one of the top performers.

U.S. big banks JPMorgan Chase (NYSE:JPM) and Bank of America (NYSE:BAC) were both 10% higher at 9:40 a.m. EST, and more consumer-facing Wells Fargo (NYSE:WFC) popped by 11%. Other bank stocks were having similar upside moves, and the Financial Sector SPDR ETF (NYSEMKT:XLF) was higher by 8.5%, so the move wasn't just confined to the big banks.

Man looking at laptop and cheering.

Image source: Getty Images.

So what

It's very rare to see moves like this in the big bank stocks, and that's especially true when there isn't any sector-specific news. So why is today's COVID-19 vaccine data from Pfizer's late-stage trials propelling the sector higher like this?

The answer is that the availability of a safe and effective COVID-19 vaccine should help banks in two different ways.

The biggest reason bank stocks have been among the market's worst performers during the pandemic is due to economic uncertainty. If unemployment stays elevated for a long time, people could have trouble paying their bills. Without a vaccine, this could lead to a long-tailed wave of defaults on loans, which could mean billions of dollars in losses for banks. If Pfizer's vaccine helps the U.S. get back to normal relatively quickly, it would dramatically reduce the loan-loss uncertainty that has plagued banks.

Second, as most American consumers are aware, interest rates have been near all-time lows throughout the pandemic. Mortgage rates, auto loan interest rates, and other consumer borrowing rates have never been lower. This is great for consumers but isn't a great profit environment for banks. Rates aren't expected to rise significantly until the economy improves, and the availability of a vaccine could accelerate the normalization of interest rates. In fact, not only is the stock market up today, but the 10-year Treasury yield also spiked to its highest level since June.

Now what

To be sure, banks are a long way from being out of the woods just yet. At the earliest, Pfizer's vaccine would start to be distributed to the people who need it most by the end of 2020 and would be widely available at some point in 2021. And even after that happens, it will likely take some time for the true economic impact of the pandemic to play out.

Having said that, the availability of a vaccine has more implications for bank profits than many investors think, and that's why it is one of the best-performing parts of the stock market on one of its best days ever.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.