While reports of positive data from potential coronavirus treatments have helped propel the market higher in recent months, investors are far too optimistic about a vaccine and stocks shouldn’t be rallying so much on each bit of news, warns Vital Knowledge founder Adam Crisafulli.
KEY FACTS
- On Wednesday, after closing out its best quarter in decades, the stock market jumped on news that a potential coronavirus vaccine developed by Pfizer and BioNTech showed positive trial results.
- “Seriously, we’re doing this again? Investors really need to stop chasing these reports,” Vital Knowledge founder Adam Crisafulli said in a note about the vaccine news.
- It’s not the first time the market has rallied on reports of a possible treatment for coronavirus: This has occurred on a myriad of occasions in the last several months, as investors cheer news from companies like Moderna, Novavax and Gilead Sciences putting out positive vaccine data.
- Crisafulli warns that markets are over-celebrating each bit of incremental vaccine news and there is still a long way before one gets FDA approval and becomes widely available.
- He thinks the bigger issue is whether the U.S. can reach herd immunity and return to economic normalcy.
- Crisafulli points out that Dr. Anthony Fauci last week warned that a vaccine won’t be entirely effective: Many Americans will likely decline to take it and the United States will subsequently struggle to achieve herd immunity.
WHAT TO WATCH FOR
There are rising concerns among health experts that the Trump administration will push the FDA to issue emergency approval for at least one coronavirus vaccine drug before the November presidential election, regardless of whether the research justifies it. Markets seem increasingly confident of a vaccine securing approval in the fall, and as such, investors “should be initially skeptical about embracing any such announcement concerning a vaccine,” Crisafulli argues. “The vaccine process is being accelerated so much that critical questions are unlikely to have answers,” such as whether the treatment will have side effects or if patients will still be contagious.
KEY BACKGROUND
Stocks recently closed out their best quarter in decades, despite a recent spike in new coronavirus cases across the country. Many states in the South and West are reporting record high numbers of cases, with more than a dozen pausing or rolling back reopening plans altogether. But the market has still bounced sharply from its coronavirus recession low point in late March: The Dow surged 18% in the second quarter, its best quarter since 1987. The S&P jumped over 20% for its best quarter since 1998. Both are still down for the year, however—the Dow by over 10% and the S&P by nearly 4%.