Investors are underestimating the impact of vaccines on US economic recovery, and should load up on stocks tied to growth, Evercore says

• Cyclical stocks and Treasury yields will benefit as COVID vaccinations increase, according to Evercore.
• Vaccine sentiment has been hurt by news about COVID-19 mutations and supplies.
• Johnson and Johnson's vaccine candidate may soon get the greenlight in the US.

Watch for cyclical stocks and Treasury yields to keep moving higher, supported by ongoing vaccinations of Americans against COVID-19 along with new vaccine formulas that are likely on the way, according to Evercore ISI.

A number of updates from US and local officials indicate coronavirus infections, hospitalizations and deaths have been declining. As well, continued acceleration in the number of vaccinations provides Wall Street with a "clearer path to reopening" of businesses and other economic activity, said the Evercore team led by Dennis DeBusschere.

Roughly 32.7 million people in the US have been injected with COVID-19 vaccines, according to data from the University of Oxford in the UK.

"As people start to understand how important reducing severe illness is, along with providing high odds of immunity, vaccine sentiment will improve significantly. As that happens, expect another sharp move higher in USDT yields and cyclicals in general," said Evercore.

The analysts noted that cyclical stocks have recently rebounded relative to defensive shares, aided by progress on the COVID-19 front.

Cyclicals refer to companies such as restaurant chains, furniture retailers and hotels that sell discretionary products and services. They tend to perform well during periods of economic growth, benefiting when more consumers have more discretionary funds to spend.

The "market and sector path for the full year remains dependent on how economic growth unfolds. A potential consumer boom in the back half of the year would allow global economic activity to finally accelerate beyond its post-[Global Financial Crisis] malaise," the note said.

The 10-year Treasury yield was at 1.12% on Wednesday. That yield began pushing toward 1% in November following updates indicating the world was moving closer to a vaccine to combat COVID-19. Investors began embracing more risk in part by selling bonds, sending yields higher.

Read more: COVID vaccines will be available at thousands of pharmacies across the US starting February 11

Evercore said that sentiment toward vaccines has declined because of concerns about supplies, distribution and virus mutations.

"The world is likely to be awash in supply in just a few months though," it said.

Johnson & Johnson's COVID-19 vaccine candidate likely to receive emergency-use authorization from the US Food and Drug Administration within a week, Anthony Fauci, the chief medical adviser to the Biden administration, said Wednesday on NBC News' Today Show. Novavax, meanwhile, last week said its vaccine candidate is 89% effective against COVID-19, with the data likely to be presented to the FDA.

New formulas would join those from Pfizer and Moderna that are already in use.