By Joy Wiltermuth
After a brutal year, it’s hard not to get excited about seeing a light at the end of the tunnel of the COVID-19 pandemic.
It’s also difficult to shake off concerns about what pitfalls might be lurking in the distance, particularly as Wall Street gets bullish about stocks zooming higher in 2021 and the U.S. economy staging a dramatic recovery.
As recent Deutsche Bank survey showed, investors rank potential complications with the mass vaccination effort as a top concern for global financial markets in the coming year, particularly if the virus mutates and “dodges” the vaccines.
Investors also pointed to the risks of serious side effects of a vaccine as a worry for markets and whether too many people will refuse to take it.
“It’s right to be optimistic. It’s really incredible news,” said James McCann, senior global economist at Aberdeen Standard Investments, of the COVID-19 vaccine rollout. “But we’ve got a lot to prove in terms of a mass vaccination program.”
McCann thinks markets likely aren’t expecting a flawless vaccination process, but worries that even basic hiccups, like syringe shortages, supply-chain challenges, and the need to administer follow-up booster shots “could shake confidence a bit.”
On Friday, the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.36% , S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.53% and the Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP -0.98% ended just shy of their all-time closing highs set a day earlier. All three benchmarks also notched weekly gains as the first round of COVID-19 vaccines developed by Pfizer Inc . /zigman2/quotes/202877789/composite PFE +0.93% and BioNTech SE /zigman2/quotes/214419716/composite BNTX -1.36% were administered.
In more good news Friday evening, Moderna Inc. ‘s /zigman2/quotes/205619834/composite MRNA -5.21% COVID-19 vaccine also became the second in the U.S. to be cleared for emergency use. Top infectious diseases specialist Dr. Anthony Fauci earlier in the day said Moderna’s shot could be in distribution to the public by March .
But even if a herculean vaccination campaign can be pulled off without major hitches, that doesn’t mean all market risks will melt away automatically.
“I think we’re early in a recovery and early in a bull market,” Jim Paulsen, chief investment strategist at The Leuthold Group, told MarketWatch. “But when I look into 2021, there are always things I’m worried about.”
For one thing, with major stock indexes already trading near record territory, its difficult to tell how much euphoria about the historic COVID-19 vaccine rollout already has been priced into markets.
Paulsen said jubilation around the initial round of COVID-19 inoculations reminded him about the old wartime adage “buy to the sound of cannons, sell to the sound of trumpets,” about investing in stocks.
“There’s no doubt that, at some point, in 2021 we are going to blow the trumpets,” he said. “Maybe we already are.” But as the saying goes, once victory finally has been declared, this time against the pandemic, Paulsen thinks stocks will see a double-digit correction.
“I don’t think it’s going to be massive or long-lasting, but rather a good buying opportunity,” he said, mainly because Paulsen also sees U.S. economic growth smashing expectations in the year ahead as people move beyond the “emotional destruction” of 2020, including worrying about losing their savings, jobs, businesses or lives to “suddenly being thrust into the best growth year,” potentially in more than 35 years .
Remember in 2019 when markets were consumed almost entirely by the risks of an escalating U.S.-China trade war?
Since this summer, financial markets have been transfixed by the race among drugmakers to develop an effective vaccine and by wrangling in Washington by lawmakers over the size and scope of additional pandemic funding, which now looks poised for a vote a last-minute vote Sunday on a near $900 billion aid package to help families, business and cities hard hit by the pandemic.