Anyone with even a passing interest in the stock market and investing will know that 2020 has been a turbulent year. First there was the Coronavirus crash in late March, then some signs of recovery toward the end of the summer, followed by another crash.
Now, there’s been yet another development: the pharmaceutical company Pfizer seems to have successfully developed a Coronavirus vaccine — and the market has reached crazy highs.
But is this trend likely to continue, and how will it impact economic recovery in general? We’ll answer these questions and more.
The market’s reaction to the vaccine so far
At the end of October, the stock market hit a low. For instance, the S&P 500 stood at 3,269.97. By 13 November, that same index had shot up to 3,585.15 — resulting in an increase of almost 10% in just two weeks. That’s even higher than the pre-pandemic point of 3,386.15, although only about 5%.
This seems like a bizarre twist of events considering the world we find ourselves in right now. After all, the United States — one of the world’s biggest economies — still faces record levels of new cases, which has ground the economy to a halt and led to further social distancing measures.
However, the market’s reaction is based on what traders think will happen (speculation) rather than what’s currently happening.
What a vaccine means
If the vaccine turns out to be the real deal, it brings various knock-on effects.
Once enough people can receive the vaccine to create herd immunity, it’s feasible that the world could “return to normal” — meaning social distancing measures could end, people businesses could reopen, and even tourism could return.
This would be a massive relief for the global economy. Many countries around the world currently face huge levels of unemployment, and many industries have been unable to operate. A vaccine would change everything.
There would also be some huge winners financially — namely, the pharmaceutical companies that developed the vaccines and all their shareholders.
However, it should be noted that not all companies will be winners — for instance, shares of Zoom dropped 17% following the news.
What kind of recovery can we expect?
You might have heard talk of V-shaped, L-shaped, and K-shaped (okay, we made that one up) recoveries. What does any of it mean, and how does the vaccine fit into this?
Until now, governments have been artificially propping up the economy with stimulus packages in the hope of circumventing a recession, which is why the recovery toward the end of summer happened. There were hopes a V-shaped recovery would be possible (meaning a linear recovery after the initial crash).
But this seemed unlikely with so many industries unable to return to normal or reopen, especially with a second wave on the midst. Instead, there were fears of an L-shaped recovery, meaning a dip followed by a stagnant economy. A grim picture indeed.
The vaccine changed everything.
Now, Schroder chief executive Johanna Kyrklund predicts that an L-shaped recovery is less likely since stocks that don’t benefit from the lockdown are finally recovering — such as banks, energy companies, and even some airlines.
Does this mean that the economy will waltz straight into a V-shaped recovery and that everything will be okay again? Not necessarily.
Should we be careful?
Before you go pouring every last penny you have into the stock market, take a step back and think carefully.
There’s no guarantee that Pfizer’s vaccine will actually be successful — although it’s shown a 90% success rate so far, trials still need more data to be sure. If that’s the case, any economic recovery is sure to be curtailed.
The action we’ve seen in the stock market so far is pure speculation. For instance, there’s lots of skepticism toward the vaccine, so the likelihood of immunizing enough people to guarantee her immunity is in doubt.
Even if the vaccine is successful, we’ll have to wait until early 2021 for it to be rolled out.
Besides, the vaccine is far from the only force that will shape our markets in the months to come. The United States still faces political certainty after challenges regarding Joe Biden’s win in the elections, and it’s unclear whether the government will be willing to pass another stimulus package to bolster the economy before a vaccine.
Of course, if you’re hoping to invest over the long term (five years or more), then now is as good a time to invest as any.
Should you invest in Pfizer?
If the uncertainty of the situation we face hasn’t put you off completely, you might be wondering whether to go ahead and buy a Pfizer stock.
Its stock price has already jumped up, and if it continues to be the frontrunner, it will provide an extra revenue source to an already-successful company. Even if other companies manage to develop vaccines, Pfizer can still benefit — with so many countries and people to vaccinate, there’s room for more than one vaccine here.
But it might not be as much of a no-brainer as you think. The vaccine isn’t the only element that could affect Pfizer’s stock price — the company had a recent setback developing an early breast cancer treatment, and the outcome of this will also affect its stock price.
Regardless, the news of the vaccines has certainly improved Pfizer’s fortunes. The company has always been viewed as slow-moving and inefficient. Recent developments will certainly challenge that perception.
Bottom line
With the year 2020 has been so far, everyone is desperate to see some good news and an end to the pandemic. But don’t let that desperation lure you into blind optimism.
We need more information about the vaccine and how the economy react before we can make more concrete predictions for the future — and decide how that affects our own investment decisions.
Although things look promising, we recommend enjoying any gains you’ve made so far from your current investments but avoiding any rash decisions.
