The prospect of a coronavirus vaccine is a big driver in the current bull market, says UBS. When positive news breaks about vaccine developments, the S&P 500 jumps 1.6% on average for the day, according to a bank study headed by strategist Keith Parker.
Upbeat vaccine news has added around 6.5 percentage points to the S&P 500’s return since May, UBS calculates, after doing an artificial intelligence (AI) review of market performance. May is when vaccine developments started getting news coverage. Since then, the index has risen 25%, which means that a quarter of that increase came from optimism about a vaccine.
An example of the buoyancy: On Aug, 24, the market rose 1% and hit another all-time high after the US Food and Drug Administration (FDA) announced its approval for the emergency use of convalescent plasma—the antibody-heavy blood component taken from people who have recovered from COVID-19. While the efficacy of this treatment has lately been called into question, in that one shining moment last week, investors’ pulses quickened.
A host of drug firms are toiling away on a serum to inoculate the population from COVID-19: Moderna, AstraZeneca, and Pfizer, to name a few. Johnson & Johnson has undertaken the largest clinical trial of a virus vaccine to date, signing up 60,000 people globally as test participants. Some of these companies’ shares have benefited more than others, with Moderna up 34% since May and J&J flat.
Perhaps the lack of an overall pharma stock boost stems from the fact that only one or two of those firms will likely emerge as the developer of the salvation vaccine. In the UBS study’s view, a greater than 50% probability exists for a working vaccine in 2021’s first half. Nonetheless, the study went on to say, “the equity market is pricing in less than that” for pharma stocks. “This implies the balance of risks is tilted to the upside.”
But right now, it’s the broader market that is taking heart: An effective vaccine, from whichever company, would solve a lot of problems for the economy at large, and for stricken industries such as airlines and hotels in particular.
By UBS’s measure, on days with positive vaccine news, the winners are airlines, hotels/leisure, autos, energy, durables, apparel, industrials, banks, and consumer finance. Pharma and biotech, not so much.
The UBS study also had some salutary tidings for small-cap stocks, which have trailed in the current rally. On good news days for vaccine, the smaller stocks outpaced the larger ones by 2 percentage points. For whatever reason, that halo effect didn’t extend to value stocks, which also have been laggards.