|And then came Monday and news of the vaccine. Pzifer and partner BioNTech announced that early results of its COVID vaccine yielded 90% efficacy, with little evidence so far of negative side effects. Hopes had been for 50 to 60% efficacy so 90% blew everyone’s socks off.
(Because I’m a scientist at heart, here’s the situation in a bit more detail. It’s a 44,000-person trial. Half got the vaccine; half got saline injections. Since the trial started 94 of the 44,000 have gotten COVID-19. Of the 94, only 9 had received the vaccine: 9/94 is the 90% efficacy rate. It will take a few more months for the numbers to get big enough for statistical significance but this is a very strong result at this stage – and the surge in cases around the world will ironically shorten the time to statistical results because the 44,000 in the trial are more likely to get exposed.
(It’s also interesting that the vaccine is the first vaccine ever based on messenger RNA. An mRNA fragment from the virus, specifically the fragment with the coding for the spike protein that the virus uses to latch onto human cells and initiate an infection, is delivered inside human cells. Once there the cellular machinery read the code and starts to produce the protein fragment, which is then used to train the immune system to detect and destroy the virus. Using mRNA is novel in the vaccine world – the idea has been around for years but an effective mRNA vaccine had not been developed, until now it seems.)
Markets went nuts. And so they should – a safe, effective, and widely dispensed vaccine is THE answer to COVID. Herd immunity is not a good option because it will take a long time to develop, during which time economic pain will persist (and more people will die). A vaccine would not only ease lockdowns but actually re-open the economy – travel, parties, sports, recreation activities, casinos, busy restaurants and bars, all the things that have been sidelined since March. None of that can happen until there’s a vaccine and, without that huge part of the economy, unemployment will stay high and expandable cash low.
Of course, early results from one vaccine do not heal a broken economy overnight. And so markets gave back most of their gains before close on Monday. They have since worked their way back up in a more reasonable manner.
What’s the outlook from here? Upwards for equities is my guess, because
- All the money that’s been sitting on the sidelines through COVID looking for a reason to get back in just got one – vaccine
- There will still be a stimulus package, is my guess. It will be smaller than was envisioned a few months ago because a Republican senate (I’m assuming the Georgia special races in January leave Republicans in control of the Senate) will demand smaller and vaccine weakens the reasons for a big package. Nonetheless, the Democrats will I think follow through on promises to support families, businesses, etc hurt by COVID – and the damage is very real, vaccine or no vaccine, so the support is arguably still justified.
- A vaccine (real reason for economic optimism) plus stimulus (fiscal reason for optimism) should combine to support stocks
Of course, the news hammered gold and silver.
What’s the outlook there? I think it’s impacted but largely unchanged.
Investors have not been buying gold only because of COVID 19. I think the most important forces driving gold are negative real interest rates and big pools of low-risk money needing to hedge their stock exposure. And those remain in place.
Real interest rates peaked in late 2018 and then started to drop when the Fed acknowledged that pretending that tightening was not working (at least, not working for the stock market).