By Michael Brush, MarketWatch
1. President Trump has a penchant for timing policy decisions (such as China trade negotiation breakthroughs) to influence the markets and the electorate at key tactical turning points. So it won’t be surprising if he exerts behind-the-scenes pressure to get vaccine approval to boost ratings and his odds against the Democrats, says Holz. Sounds Machiavellian. But welcome to politics.
2. The federal government is directly funding many of the vaccine-development programs. This “raises the odds of near-term approval, given the inherent bias,” says Holz.
3. Initial approval would be for emergency use only, which lowers the research hurdles for efficacy. “The efficacy bar will be fairly low considering the toll Covid-19 has taken on the world over the past four to six months from a health and an economic standpoint,” says Holz.
Emergency-use approval seems like a letdown because it would take a lot of potential beneficiaries, including you and me, out of the equation. Health-care workers would be first in line. But limited-use approval would still be important for investors and the economy.
It would help the health-care system. Our leaders shut down much of the economy when Covid-19 struck because they had failed to prepare the health-care system for a pandemic. Having vaccines that might keep more front-line health care workers on the job and healthy — boosting their morale and numbers — would take some of the pressure off politicians to reimpose fresh lockdowns to “flatten the curve” in a resurgence.
Will we get a resurgence? Probably, but not right now. I think the current resurgence data are just noise. The case-count data are based on non-random samples, which renders them meaningless, statistically. Florida tested more and found more, in lockstep. Exactly what you would expect. The Florida data do not show a resurgence in Covid-19, only more testing.
But I do expect a meaningful resurgence starting in early October when the flu season begins. This is what happened with the swine flu in 2010 and the Spanish flu a century ago. However, the October resurgence won’t be as scary as round one, because a lot of people will already have been exposed, and we will have better testing and tracking capabilities to support selective rather than blanket lockdowns. And we might even have a vaccine.
Vaccine investors, hold the Champagne
Early approval of vaccines before the elections probably wouldn’t help investors in the companies developing them, including Moderna, AstraZeneca, Pfizer /zigman2/quotes/202877789/composite PFE +0.11% , Johnson & Johnson /zigman2/quotes/201724570/composite JNJ -0.83% , Sanofi /zigman2/quotes/201967021/composite SNY +0.50% , Inovio Pharmaceuticals /zigman2/quotes/202993817/composite INO -15.39% , Novavax /zigman2/quotes/202614340/composite NVAX -3.85% and Arcturus Therapeutics /zigman2/quotes/202272083/composite ARCT +1.63% , among others.
That’s because many of the stocks have already risen a lot, especially those closer to being pure plays because they are smaller.
Next, it would be bad PR for vaccine producers to be seen making a lot of profits off a global pandemic health crisis. (The same goes for Covid-19 therapy developers including Gilead /zigman2/quotes/210293917/composite GILD -0.93% , which is researching remdesivir as a treatment.) Given the government’s role in funding research, it would likewise also pressure vaccine makers to cap pricing.
But many other investors would benefit from vaccine approvals. Biotech and pharma investors would get a boost if the public and politicians view them as having “saved the day” in the Covid-19 crisis. That would mean there would be less pressure for them to rein in drug pricing.
That would support biotech and pharma companies and exchange traded funds including iShares NASDAQ Biotechnology Index /zigman2/quotes/206189322/composite IBB -0.39% and SPDR S&P Biotech /zigman2/quotes/205950134/composite XBI -0.16% . They have been plagued for years by worries the government will regulate drug prices.
“In the end, a vaccine likely does more for the sector as whole from a sentiment standpoint,” says Jefferies’ Holz.
Vaccine approval would also help cyclical and travel stocks because it would lower the odds of another full lockdown. It would also benefit a group I call “public-gathering-place” stocks.
A portfolio of eight public gathering place stocks I suggested in my stock letter, Brush Up on Stocks , on March 17 was already up 71% by the close June 15, compared with 26.3% gains for the SPDR S&P 500 ETF Trust /zigman2/quotes/209901640/composite SPY -0.88% . I wrote about this topic in MarketWatch last month.
I expect further gains from those stocks when vaccines are approved. My portfolio includes Churchill Downs /zigman2/quotes/205054336/composite CHDN -1.75% , Royal Caribbean Cruises /zigman2/quotes/208854639/composite RCL -1.24% , Carnival /zigman2/quotes/202325446/composite CCL -1.34% , Planet Fitness /zigman2/quotes/203234487/composite PLNT -3.19% and Cedar Fair /zigman2/quotes/205497488/composite FUN -0.96% in amusement parks.
At the time of publication, Michael Brush owned CHDN and CCL. Brush has suggested PFE, JNJ, SNY, INO, NVAX, IBB, XBI, CHDN, RCL, CCL, PLNT and FUN in his stock newsletter, Brush Up on Stocks. Brush is a Manhattan-based financial writer who has covered business for the New York Times and The Economist Group, and he attended Columbia Business School. Follow Brush on Twitter: @mbrushstocks.