Josh Giacalone, Corporate Sustainability Analyst
jgiacalone@haverfordquality.com
Tim Hoyle, CFA, Chief Investment Officer
thoyle@haverfordquality.com
As Odds of a Vaccine Increase, So Too Does a Reluctance to Take It
Dozens of companies and institutions around the world are moving quickly to develop a vaccine for the novel coronavirus. Nine vaccine candidates, such as those from Pfizer and Moderna, are currently in phase 3 trials. As a result, there should be growing optimism that the United States will soon have a viable vaccine to prevent the spread of COVID-19. An analysis by Goldman Sachs and the Good Judgement Project shows the probability of distributing an FDA-approved vaccine to 25 million people by the end of March 2021 has risen to 54%. At the end of May, the odds of having a successful vaccine by March of next year were just 9%.
Some scientists have reminded the public that a viable vaccine may never arrive, pointing to the fact that we have yet to develop a vaccine for SARS or MERS. A key distinction though is that no vaccines for SARS or MERs ever entered phase 3 trials. If history serves as a guide, there is plenty of reason to be optimistic: 73% of phase 3 trials for infectious disease vaccines were successful between 2006 and 2015, according to a recent study. With so many promising candidates already in the final stages of clinical trials, the probability that we do not have a vaccine by April 2022 has fallen precipitously, now standing at only 2% versus 37% at the end of May.
In order for a vaccine to translate to real economic growth however, a significant portion of the population will need to take it. The public has grown increasingly skeptical, understandably so. Health officials and legislators have provided inconsistent guidance throughout the pandemic. Most recently, the CDC reversed a previous statement that COVID-19 is airborne. Pew Research surveys highlight this skepticism, showing that the share of adults willing to take a newly-approved vaccine has shrunk to 51%, down from 71% four months ago. Reluctance to take a vaccine could delay the economic benefits. That being said, the FDA has reiterated that it will only approve a vaccine once it is proven to be safe. We expect that as a growing share of the populous receives the vaccine without any complications, more will be willing to vaccinate themselves and the economic recovery will accelerate.
As the vaccine outlook improves, so does the outlook for a broadening bull market.
The discovery of a vaccine would eliminate one the greatest headwinds to economic growth we’ve seen in generations, with huge implications for the stock market. Goldman Sachs has identified a positive correlation between the increasing odds of a vaccine and the performance of the Russell 1000 Value index*. The dispersion in performance between growth (i.e. work from home stocks) and value (i.e. socially near stocks) has not been this wide since 2000. We expect a vaccine to be a tailwind for diversified Haverford portfolios as it hastens a market rotation out of the narrow swath of stay at home winners into a broader basket of stocks.
*The Russell 1000 Value Index is a market-capitalization weighted index and subset of the Russell 1000 constructed to provide a comprehensive and unbiased barometer of the large-cap value market.
