A Second Vaccine; It’s A New Game
Moderna’s vaccine is reported to be 94.5% effective, making two vaccines showing higher efficacy than most expected. While results from both Pfizer and Moderna are preliminary, these early results are a very positive sign. Equally importantly, we should have enough doses of these two vaccines in the first half of 2021 potentially to vaccinate the entire U.S. population, according to comments by HHS Secretary Azar. While distribution challenges for Pfizer’s solution left many concerned, Moderna’s remains stable at refrigerator temperatures for 30 days, so distribution should be far easier. This has very significant ramifications for the economy and highly differentiated implications for various businesses.
Covid 19 cases have surged in recent weeks and governments are responding by imposing more restrictions, although people are increasingly less willing to curtail their activities, which has concerning implications for further spread of the pandemic. So, the positive vaccine news couldn’t come too soon. Economic recovery may slow in Q4, but that should prove to be temporary. Activity should get turbocharged the middle of next year. Once vaccinated, people will feel free to travel, take vacations, visit their friends, and return life to normal.
The stock market is rallying this morning, but there is considerably more upside. The rotation we saw last week is getting another boost with today’s news. Technology stocks, which benefitted from the pandemic and people worked from home, are down this morning. (But several secular drivers—ones not prompted by the COVID-induced behavioral changes—remain in place for select stocks within the technology space. Sell-offs here may be opportunities.) Companies hurt by the pandemic, including airlines, cruise lines, hotels, amusement parks, and many others in the bull’s eye of the pandemic are still down anywhere from 20% to 50% or more. These companies now enjoy strong recovery prospects and their stocks have considerable upside potential. Better vaccine prospects also point to a stronger economic recovery in 2021 and that should lift those companies leveraged to the broader economy, such as banks and energy companies.
The bond market, which has been supported by very aggressive Fed injections of reserves to push rates to exceptionally low levels, remains quite vulnerable. Long maturities should be avoided and we expect the yield curve to steepen considerably. This, too, should lift financial stocks, especially banks and insurance companies.
The past 9 months have been a very difficult period, but we can now clearly see the light at the end of the tunnel. People should still be vigilant until they have been vaccinated. There is also still some hard work to be done. Vaccines doses must be produced in large quantities and distributed. But it is a new ballgame, thank goodness.
Dr. Charles Lieberman
Dr. Charles Lieberman is the Chief Investment Officer and co-founder of Advisors Capital Management, LLC. Dr. Lieberman began his professional career as an academic at the University of Maryland and Northwestern University. After five years in academia, he joined the…