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The COVID-19 vaccine verdicts loom as the next big market risk

NEW YORK (Reuters) – Optimism that vaccines are on track to end the coronavirus pandemic has been a major factor in the pickup in US stocks this year. This will face critical testing in the coming weeks, as investors await clinical data on whether they actually work.

An analysis by UBS found that around 40% of the market’s gains since May can be tied to hopes of vaccines to protect against COVID-19, which has killed more than 960,000 people worldwide and rocked the global economy. .

Global efforts to develop a vaccine are coming to a head, with late-stage data on trials from companies like Pfizer Inc PFE.N and Moderna Inc MRNA.O possible as soon as October or November. Disappointing results could further shake markets which have recently become turbulent on concerns about delayed fiscal stimuli and uncertainty surrounding the US presidential election on November 3.

“The expectation is that this stuff will work,”

; said Walter Todd, chief investment officer at Greenwood Capital in South Carolina. “So any news to the contrary could be a risk to the market.”

The number of vaccines under development could mitigate the negative impact on the market of each single setback. According to the World Health Organization, more than half a dozen vaccines globally are at an advanced stage of testing out of more than 30 currently being tested in humans.

“We are bracing ourselves for success, in the sense that if you throw enough spaghetti at the wall, hopefully at least a stick of pasta,” said Liz Young, director of market strategy at BNY Mellon Investment Management.

This may explain why stocks overall barely reacted earlier this month when AstraZeneca Plc AZN.L and the University of Oxford partner suspended global trials of one of the leading vaccine candidates after a UK study participant became seriously ill. Trials have resumed in Great Britain, Brazil and South Africa, but remain suspended in the United States.

Some forecasts of vaccine availability have become less optimistic. Good Judgment, a company whose forecasters make predictions based on publicly available evidence, put the chances that a vaccine will be widely distributed in the United States by the end of March at 54%. This rose from an estimate of less than 20% in early July, but down from more than 70% earlier this month.

Pfizer and Moderna could report first efficacy results in October or November based on an early reading of the data, followed by data from companies such as AstraZeneca, Johnson & Johnson JNJ.N and Novavax Inc NVAX.O.

An approval or authorization for emergency use this year could lead to a surge in travel, leisure and other stocks that have been decimated by closures due to the pandemic, also fueling a long-awaited shift to stocks value from technology and other stocks on the market for years.

Even if a vaccine is approved, doubts persist about the ease and speed of distribution. President Trump and his health officials have issued mixed predictions about when the general public might have access.

“The potential for market disappointment will likely come from the realization that production and wide distribution will take longer,” said Art Hogan, chief market strategist at National Securities.

An approved, widely distributed and accepted vaccine could lead to a gain of about 300 points over the S&P 500, or more than 8% at the current level of the index, according to Keith Parker, head of UBS’s global and US equity strategy.

If a vaccine is widely distributed in the first quarter, BofA Global Research expects global gross domestic product (GDP) growth of 6.3% in 2021, compared to 5.6% if this does not occur until the third quarter.

Disappointing news from clinical trials could result in a 100-point loss from the S&P 500, or about 3 percent, Parker estimates.

While the market may be able to handle a vaccine setback “reasonably well,” several setbacks could cause a rethink of the vaccine race, he said.

Reporting by Lewis Krauskopf; Editing by Ira Iosebashvili and Bill Berkrot

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