Glimmer of Hope for a COVID-19 Vaccine

News of Pfizer’s progress developing a COVID-19 vaccine has sent markets higher and offers us hope for a post-COVID world. How should investors interpret this news in the short- and long-term?

Pfizer released interim results of its phase-3 trial of the vaccine it is developing with Munich-based BioNTech. The trial has enrolled approximately 44,000 volunteers and interim results show a 90% efficacy at preventing patients from presenting COVID-19 symptoms.

Based on the scientific community’s reaction, 90% has exceeded most scientists’ expectations of 50-70% efficacy. This is a very positive development that could lift social distancing restrictions and get our economy chugging along again. The consensus seems to be that if Pfizer’s vaccine is genuinely that effective then other vaccines that are not far behind in clinical trials such as the Moderna vaccine, which is based on the same genetic engineering technology, could have broadly the same efficacy. The one difference between the two is the Pfizer vaccine requires a very cold distribution chain, which will present logistical challenges, while Moderna’s vaccine seems to have less stringent cold chain requirements.

Multiple vaccines could be available in spring 2020 with the caveat there remains a number of unknowns such as durability of protection, effectiveness across all age groups, and ability to prevent severe COVID-19 cases. Pfizer says it could deliver as much as 150 million doses by the end of Q1 2021, providing immunizations for 75 million people.

Of course, the question will then turn to whether the population will be confident enough to take the vaccine. To date, polling results suggest people’s trepidation and suspicion.

What does this mean in the short-term for investors? This is good news, but currently the increasing number of COVID-19 infections means the economic recovery is likely to stall over the coming weeks and months. The number of new confirmed cases is pushing the seven-day average to more than 123,000 as of November 10th. This is double what it was in the summer peak, in part due to increased testing, but more importantly, hospitalizations are the highest they have ever been.

Restrictions will continue or perhaps be tightened. Consumers are already staying away from restaurants, not only in the worst-affected states, but nationally. That in turn suggests the rebound in hiring in bars and restaurants could go into reverse. The same pattern is evident in the retail sector, with consumer foot traffic at malls easing in recent weeks.

In the near-term, one positive is an economic stimulus package is still on the table in Congress and President-elect Biden is in favor of one.

Longer term, a large-scale roll-out of a vaccine in the U.S. probably wouldn’t begin until Q2 2021 and it might take six months or more to complete. But if the vaccine is very effective then there is the possibility that restrictions could begin to ease once vulnerable people and front-line workers have been vaccinated.

A return to normalcy would benefit cyclical stocks. Activity in the still-depressed sectors like food services, travel, and accommodation could return to their pre-pandemic levels, which would help lower the unemployment rate.

In terms of interest rates, the Federal Reserve has already said it plans to hold the federal funds rate at its lowest level between 0-0.25% and pledged to keep it there until the economy reaches full employment.

All around, the news from Pfizer offered a glimmer of hope that a ‘back to normal’ economy may come sooner rather than later.

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