Yesterday, we heard the groundbreaking news from US pharmaceutical giant Pfizer and its German research partner BioNTec, that their COVID-19 vaccine candidate has been found to prevent more than 90% of people from getting the virus. First versions of most vaccines have usually done well if they prove to be over 60% effective, so this is a major boost.
As the first medicine of its kind to use messenger RNA technology, the vaccine essentially teaches the body’s cells to become vaccine factories. A broader suite of efficacy data is expected in the third week of November which will help to answer more questions, such as how effectiveness of the vaccine varies across age groups. We will also need to wait further to know whether the immunity it provides is long lasting.
There are other vaccine candidates in late stage trials, including a vaccine based on similar technology by another US company called Moderna (in which the Baillie Gifford Positive Change Fund, held in many portfolios is invested) and of course the Oxford University vaccine. We should expect data from these trials to be released in the coming weeks and months as well.
According to the World Health Organisation, in total there are 47 candidate vaccines in clinical evaluation and 155 candidate vaccines in preclinical evaluation.
Global markets rally
As you would expect, the team at EQ have discussed this scenario. Due to concerns about rising permanent unemployment levels and a weakening outlook for global demand, we have tilted portfolios towards defensive sectors and quality companies. But given governments and central banks have been willing to throw money at the problem, together with the possibility of a scientific breakthrough, we have maintained our overall exposure to growth assets.
Following yesterday’s announcement, markets have rallied sharply. A single day is a very short time period, so we have made a few observations.
It’s beaten-up parts of the market – airlines, hotels, restaurants, energy companies and small businesses, that are rallying the hardest. Markets are up anywhere from 4% to over 8% driven by differences in sector weights. The technology heavy Nasdaq Index in the US is down around 1.5%. Energy companies have been the strongest contingent as the price of oil surges by double digits with the expectation of a return to some sense of normality.
However, we are already seeing some early signs of pause for thought as the focus shifts towards the vaccine safety data and the time it will take to manufacture, transport in super-cold storage and administer.
Joe Biden takes the White House
It was also the first working day after Joe Biden was declared the (unofficial) winner of the US election. With President Trump’s refusal to accept the projected result, we expect plenty of headlines around alleged irregularities over the coming weeks but we believe this will be little more than noise. Removal of this election result uncertainty is therefore good for markets.
The market will now start to digest the implications of President Biden’s economic policies, including his coronavirus task force. The objectives are likely to be substantially different to the task force of Mr Trump and could involve measures that increase social distancing to try and slow the spread of the virus.
In the immediate term, while we wait for a little more clarity, we will maintain our defensive positioning but we are increasing exposure to some of the more cyclical parts of the market. Overall, we still believe normal could look quite different for a long time, but this could mark a new phase for the pandemic – possibly even the start of the end.