NEW YORK (Reuters) – Optimism that vaccines are on the way to ending the coronavirus pandemic was a major contributor to U.S. stocks resurgence this year. This will face a critical test in the coming weeks as investors wait for clinical data to see if they’re actually working.
A UBS analysis found that around 40% of market gains since May can be attributed to hopes for vaccines to protect against COVID-19, which has killed over 960,000 people around the world and rocked the global economy.
Global efforts to develop a vaccine are coming to a head. Late-stage data on studies from companies like Pfizer Inc.
and Moderna Inc.
possible from October or November. Disappointing results could further shake markets, which have become tumultuous recently amid concerns over delays in fiscal stimulus and uncertainty surrounding the US presidential election on November 3rd.
“The expectation is that this stuff will work,” said Walter Todd, chief investment officer at Greenwood Capital, South Carolina. “Any news to the contrary could pose a risk to the market.”
The number of vaccines under development could mitigate the negative impact of a single setback on the market. According to the World Health Organization, there are more than half a dozen vaccines in late-stage studies of over 30 vaccines currently being tested in humans worldwide.
“We’ll prepare for success if you throw enough spaghetti against the wall, hopefully at least one pasta stick,” said Liz Young, director of market strategy at BNY Mellon Investment Management.
This could explain why the shares were listed earlier this month as AstraZeneca Plc
and partner Oxford University paused global trials with a leading vaccine candidate after a participant in its UK trial fell seriously ill. The trials have resumed in the UK, Brazil and South Africa, but have continued to be suspended in the US.
Some projections about vaccine availability have become less optimistic. Good Judgment, a company whose forecasters make predictions based on publicly available evidence, estimates the likelihood that a vaccine will be widespread in the U.S. by the end of March is 54%. That’s an estimate of less than 20% in early July, but a decrease of over 70% in early this month.
Pfizer and Moderna could report initial efficacy results in October or November based on early data read, followed by data from companies like AstraZeneca, Johnson & Johnson
and Novavax Inc.
An emergency permit or approval this year could spur travel, leisure, and other inventory decimated by pandemic shutdowns, while triggering a long-awaited shift in technology and other growth drivers into assets that have been in the market since Years.
Even if a vaccine is approved, questions remain as to how easily and quickly 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 result from the realization that it will take longer to manufacture and broadly distribute,” said Art Hogan, chief marketing strategist at National Securities.
An approved, widely used and accepted vaccine could result in a gain of around 300 points over the S&P 500, or more than 8% at the current index level, according to Keith Parker, head of US and global equity strategy at UBS.
If a vaccine is widespread in the first quarter, BofA Global Research forecasts global gross domestic product (GDP) growth of 6.3% in 2021, compared to 5.6% if it doesn’t happen until the third quarter.
Disappointing news from clinical trials could result in a 100 point loss from the S&P 500, which Parker estimates is roughly 3%.
While the market may be able to handle one vaccine setback “pretty well”, multiple setbacks could cause a rethink in the vaccine race, he said.