Optimism that vaccines are on track to end the coronavirus pandemic has been a major factor in the resurgence of US stocks this year. That will face critical test in the coming weeks as investors await clinical data on whether it actually works.
An analysis by UBS found that about 40% of the market gains since May can be linked to hopes that vaccines will protect against COVID-19, which has killed more than 960,000 worldwide and has shaken the economy. world.
Global efforts to develop a vaccine are reaching a critical point, and data from the later stages of trials conducted by companies like Pfizer Inc and Moderna Inc are possible as early as October or November. The disappointing results could further shake markets that have recently turned turbulent due to concerns about delays in fiscal stimulus and uncertainty surrounding the November 3 US presidential election.
“The anticipation is that this is going to work,” said Walter Todd, chief investment officer at Greenwood Capital in South Carolina. “Therefore, any news to the contrary could represent a risk to the market.”
The number of vaccines in development could mitigate the negative impact on the market of any setback. More than half a dozen vaccines around the world are in late-stage trials of the more than 30 currently being tested in humans, according to the World Health Organization.
“We’re setting ourselves up for success in the sense that if you throw enough spaghetti on the wall, hopefully at least one stick of noodles,” said Liz Young, head of market strategy at BNY Mellon Investment Management.
That could explain why stocks generally barely reacted earlier this month, when AstraZeneca Plc and its partner at the University of Oxford halted global trials of one of the leading vaccine candidates after a participant in their trial in the UK. Kingdom became seriously ill. Trials have resumed in Great Britain, Brazil and South Africa, but remain on hold in the United States.
Some forecasts about vaccine availability have become less optimistic. Good Judgment, a company whose forecasters make predictions based on publicly available evidence, put the chances of a vaccine being widely distributed in the United States at the end of March at 54%. That’s up from an estimate of less than 20% in early July, but up from 70% earlier this month.
Pfizer and Moderna could report initial efficacy results in October or November based on an early reading of the data, followed by data from companies such as AstraZeneca, Johnson & Johnson, and Novavax Inc.
An emergency use approval or authorization this year could lead to an increase in travel, leisure and other stocks that have been decimated by pandemic-related closures, while also driving a long-awaited shift in technology value stocks. and other growth names that have led the market for years.
Even if a vaccine is approved, questions remain about the ease and speed with which it can be distributed. President Trump and his health officials have made conflicting predictions about when the general public might have access.
“The potential for market disappointment will likely come from the realization that manufacturing and broad distribution will take longer,” said Art Hogan, chief market strategist at National Securities.
An approved, widely distributed and accepted vaccine could result in a gain of around 300 points over the S&P 500, or more than 8% at the current level of the index, according to Keith Parker, director of US and global equity strategy. From UBS.
If a vaccine is widely distributed in the first quarter, BofA Global Research projects global gross domestic product (GDP) growth of 6.3% in 2021, compared to 5.6% if that does not occur until the third quarter.
Disappointing news from clinical trials could result in a loss of 100 points from the S&P 500, or about 3%, Parker estimates.
While the market could handle a vaccine setback “reasonably well,” several setbacks could prompt a rethinking of the vaccine race, he said.
.
