How the Rollout of the COVID-19 Vaccine Has and Could Continue to Move the Markets

Ever since the stock market crashed in February 2020, countries, politicians, and individuals have pinned their hopes for a “return to normal” to a singularity: a vaccine that could inoculate the globe against the novel coronavirus causing our collective woes.

But as it happens, rolling out a global vaccine does not occur in a day. Even now, six months after the first Covid-19 shot was given on 8 December 2020, no country (except, perhaps, Israel) has yet to reach the 70-85% herd immunity projection from National Institute of Allergy and Infectious Diseases. (That includes the United States, which is still facing vaccine hesitation from at least 1 in 5 Americans.)

And with stock markets – and their overarching economies – closely linked to the current public health crisis, the vaccine rollout has had a profound and often immediate effect on investors’ portfolios.

The Ultimate Race

Vaccine development is a notably arduous process – on average, it takes 10 to 15 years to develop an effective, FDA-approved vaccine for a single disease. Until now, the fastest a vaccine ever hit the market took place in the 60s, when researchers pushed through a mumps vaccine in just four years.

So, when the world realized that “return to normal” couldn’t happen until an effective vaccine hit pharmacy shelves, the U.S. Department of Health and Human Services jumpstarted “Operation Warp Speed” to rush vaccine development like never before.

And – somewhat unbelievably – it worked. By funneling billions of federal dollars into biotech and pharmaceutical research companies and reassessing the risk of large-scale clinical trials on brand new vaccines, Moderna and Pfizer (which worked with German-based BioNTech and was not a member of OWS) not only developed a Covid-19 vaccine in under a year, but they did it by pursuing a long-theorized but yet-realized vaccine technology: mRNA vaccines.

The way mRNA vaccines work is relatively simple. Instead of inoculating people with whole, altered viruses, these vaccines provoke our bodies to produce the coronavirus spike proteins using messenger RNA (mRNA). This allows your body to recognize the virus and create antibodies to destroy it – before you ever contract the disease.

Or, as one Twitter user so aptly put it: “By far the best description I’ve seen of how mRNA vaccines work is that they tell your body to make up a guy and then to get really mad at that guy.”

But we digress.

Vaccines and the Stock Market: Phases I and II

It’s important to note first that the relationship between the Covid-19 vaccine and the stock market was always going to be complicated. Two factors in particular play into this dynamic.

The first is that markets serve as a forward-facing indicator of the underlying economy. In other words, stocks tend to move on good (or bad) news looking forward – just look at how investors respond to guidance come earnings report season.

The second is that the market, as a function of the principle above, began to respond to the vaccine rollout far before first vaccine made it into the arm of a UK grandmother. In fact, markets began to respond – albeit tentatively – before the first vaccines officially made it into large-scale clinical trials.

Specifically, Moderna and Pfizer, though working with brand-new technology in a high-pressure vacuum, pushed out their initial clinical data for Phases I and II as quickly as possible: July 14th for Moderna, and August 12th for Pfizer. In the weeks between and after, the market – already clawing its way to recovery from the recent crash – continued to rally, with the S&P 500 and NASDAQ gaining almost 400 points, respectively, between July 17th and September 1st.

S&P 500 performance, July-September 2020 via CNBC
Dow Jones, NASDAQ, and S&P 500 performance, June-September 2020 via CNBC

Vaccines and the Stock Market: Phase III

Immediately after the successful release of their initial trials, Moderna and Pfizer then concentrated their efforts into Phase III. Moderna recruited primarily in the United States, with Pfizer working its way around the globe.

Simultaneous ten-week trials enrolled a collective 70,000 individuals to test vaccines against the placebos; and as participants were released into the real-world, usable data began to trickle in almost immediately. By November, the verdict was in: both vaccines achieved 95% efficacy across the board, with less than 2% of vaccinated individuals developing adverse effects.

These results sparked cheers and optimism around the world, with investors plunging into the stock market and the current administration crying that the pandemic would soon be at its end. But, as papers reported at the time, some stocks were sure to benefit more than others – and the market was already beginning to move.

The aviation sector was one of the biggest casualties of the pandemic, and as vaccine manufacturers rolled out their good news, airlines crowed their own. On November 16th, after Moderna announced their stunning trial results, shares of United Airlines leapt 8.6%, with American Airlines and Delta following close behind at 6%. And the owner of British Airways, International Airlines Group, saw an additional 12% rise – after skyrocketing 40% the week before on Pfizer’s announcement.

U.S. Global Jets ETF performance compared to NASDAQ, Dow Jones, and S&P 500, November 2020-January 2021 via CNBC

Property and commercial real estate also found reason to celebrate for the first time since the pandemic began, with shares of the iShares Global REIT ETF rising more than 13% in ten days, and SL Green ballooning 37% in two weeks. The message was loud and clear: even before the vaccine rollout became official, investors were ready to return to business as usual.

iShares Global REIT ETF performance compared to NASDAQ, Dow Jones, and S&P 500, April-December 2020 via CNBC

Tech Stocks Tumbled on Good Vaccine News

But not everyone was celebrating preemptively. While the vaccine news was good for industries that had been slammed repeatedly as the pandemic took the world in waves, tech companies had flourished under increasing work-from-home demand. And when drug companies began to release good news, tech stocks began to falter.

For instance, Amazon, the essential shop-from-home giant that fueled our lives during the pandemic, tumbled almost 5% in a week after Pfizer’s announcement after skyrocketing over 59% in a matter of months, while Zoom Video gave up 17% in a matter of days as investors predicted the end of work-from-home arrangements, ending its meteoric 635% rise. Netflix, too, slumped over 8.5%, denting its 79% gains significantly.

NASDAQ Composite performance, 2020 via CNBC

Let the Rollout Begin

The first vaccine was officially authorized for emergency use by the FDA on 11 December 2020, with the first doses of Pfizer’s groundbreaking research arriving in the United States days later. Modern received their emergency use authorization a week later on 18 December.

In the weeks that followed, investors – predicting difficulties overcoming the tech stock dominance of 2020 after seeing the NASDAQ rise 45% in a year, with tech contributing more than half of the S&P 500’s 18% total returns – started shifting their money outside the United States. For the first time in a year, the S&P 500 sat largely stagnant.

And then, the vaccine rollout ground to a near-halt.

As TIME reported on 8 January, state and local health departments struggled to implement mass vaccination programs, largely unguided by federal efforts. As concerns mounted surrounding Covid-19 distribution, the market experienced its sharpest one-day losses since October in the last week of January, while at the same time traders grappled with the frenzied activity abounding in the GameStop short squeeze.

But while new Covid variants put pressure on vaccine distributors to get ahead of the curve, the Biden administration announced the purchase of enough shots to vaccinate most of the United States with a two-dose regiment by the end of summer – despite the ongoing vaccine shortages. And with that, United States markets were back in business: between January 29th and February 12th, the S&P 500 rose over 200 points.

A Reversal of Good Fortunes

Despite earlier predictions, tech stocks continued to perform in the early months of 2021, though some experienced moderate corrections. Analysts once again predicted that those industries that took a beating in 2020 – including travel and entertainment – would rebound as populations got their vaccines.

But in a broad reversal of November estimates, commercial real estate investments continued to see a shortage of interest, leading analysts to revise their prediction. While the vaccine rollout saw many individuals cautiously reenter the public space, fewer than estimated wanted to return to business as usual. Instead, they were ready to forge a new normal.

As vaccines became more widely available again, with the rollout increasing after the administration turnout, the “new economy” stocks that thrived in the pandemic – particularly internet and ecommerce – began to give up their lead to “old economy” stocks like retailers, banks, and energy companies. And in February, a number of bullish investors noted that a smooth vaccine rollout was the key to opening customers’ wallets – which, in turn, would bolster lagging market performance.

But a smooth rollout wasn’t to be. Delays and shortages gnawed away at market confidence – which, in tandem with the rapid-fire discovery of new variants of the virus, fueled fears that widespread inoculation may not lead to herd immunity. To allay economic fears and boost the country’s confidence, the Biden administration announced the purchase of 200 million more doses.

But in the middle of February, polls began to show vaccine hesitancy splitting along party lines. Winter storms slammed the east, Midwest, and south. Texas lost power in much of the state. And the vaccine rollout slowed by 6 million doses at a crucial time. Between February 12th and March 5th, the S&P 500 lost 100 points.

S&P 500 performance, January-March 2021 via CNBC

March Showers Bring May…Vaccines

And then, slowly but surely, the madness stopped. Texas thawed. The Biden administration pushed doses across the United States, from sea to shining sea. And the S&P 500, despite some choppy trading, began to trend upward again.

By April, tech and consumer stocks gained on optimism that the increasingly smooth vaccine rollout would allow business to return to normal, allaying fears that the tech sector is doomed to crash as soon as America is vaccinated. When the end of the month rolled around, half of the United States reported a drop in Covid cases despite some reticence. The CDC rolled back mask restrictions for fully vaccinated individuals as the weeks passed.

And while the federal government’s announcement that it would temporarily waive intellectual property rights on vaccines to bolster global production caused short-term panic in the biotech industry, the markets bounced back practically overnight.

Between March 5th and May 7th, the S&P 500 gained just under 400 points. Business as usual was on its way – if not already here.

Dow Jones, S&P 500, and NASDAQ performance, 2021 YTD via CNBC

The Future of the Market Looks Bright

The Dow Jones Industrial Average, S&P 500, and NASDAQ Composite indices have all posted record-breaking gains in the opening months of 2021. The market rally that began in a time of infection and mayhem has morphed into long-term gains in stocks that shaped not only our 2020, but continue to propel us forward into 2021.

And as the vaccine rollout subdued the virus and allowed the United States to return to some semblance of normalcy, the markets watched, responded with a hint of drama, and settled down into a new normal of its own.

Some sectors of the market appear poised to permanently benefit from changes. The extreme leaps in industries such as video streaming, online gaming, and cloud computing has seen exponential rises in profits, interest, funding – and yes, stock share prices.

But until the vaccination headlines are able to take a full backseat to the market’s recovery as the world receives their vaccinations, there’s no guarantee in what the future holds.

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