The Folly of Vaccine Investing

Moderna’s latest vaccine news is not the first such story to influence the market, and it won’t be the last, but investors should be wary of this pattern

Not for the first time, the market is reacting this morning to vaccine-related news as Moderna’s (NASDAQ: MRNA) trial has reportedly created antibodies to the coronavirus in all of its test subjects. Not two days ago, the market was reacting positively to similar vaccine news when it was announced that Pfizer (NYSE: PFE) and BioNTech’s (NYSE: BNTX) respective vaccine candidates had received Fast Track status from the FDA. The market soared all day before the S&P 500 (NYSEARCA: VOO) and Nasdaq (NASDAQ: QQQ) plummeted in the final hour of trading. 

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I’m not saying that the same is going to happen today, but the market is in the green this morning and we’ve seen this whole vaccine song and dance many times in 2020. Likewise, the market has yet to correlate with the economic reality facing the global economy right now. It’s time that investors understood the true implications that the eventuality of a vaccine will have. 

Will the market rise if there’s a vaccine?

It seems certain that the market will continue to soar when an effective vaccine is eventually released. However, it draws similarities with the ‘actual revenue versus potential revenue’ argument in investing — see Ford (NYSE: F) versus Tesla (NASDAQ: TSLA)

Investors betting on the market reopening thanks to a vaccine are simply betting on potential and not the reality of the moment. The market is always looking towards the future, not the present. This isn’t unusual. The danger is that if this future isn’t fulfilled, it crashes back down. The average time it takes to create an effective vaccine is 5-10 years, and even with the full force of the world’s powers collaborating to end COVID-19, it could still take, at best, 12-18 months to develop one, and then it has to be distributed. For this reason, it would be unwise to invest in big pharma stocks based solely on this hypothesis. And then there is the issue that a vaccine won’t fix our problems right away.

Not to be a gloomy Gus, but if we assume that vaccination studies began in February this year, then we are looking at 7 more months of this ‘new normal’ in a best-case scenario. Can Macy’s (NYSE: M) or other traditional retailers survive that long? What about the loss of revenue to Boeing (NYSE: BA), Delta Airlines (NYSE: DAL), and the travel industry as a whole? Even Starbucks (NASDAQ: SBUX), McDonald’s (NYSE: MCD), and other partially open restaurant stocks are going to suffer losses that will take years to build back up.  

Investors should be careful not to lose sight of the long-term benefits of investing. By investing in Pharma stocks based solely on their ability to create a vaccine, and with no prior knowledge of the industry, you are setting yourself up for failure. These companies make all kinds of drugs, while a vaccine could represent but a fraction of any revenue generated. Do not base your investment thesis off of vaccine hopes, and that also applies to your strategy as a whole. 

Don’t forget about the trade war…

Let’s not ignore what was the biggest economic threat in 2019 — the U.S.-China trade war. Though a phase one deal was finally agreed on last December, tensions related to the virus, Hong Kong, and even TikTok look set to boil over. 

Just last night, China threatened retaliation against the U.S. for its stance on Hong Kong, where President Trump has now revoked special trading statuses. Asked if he planned to talk to Chinese President Xi Jinping, Trump said: “I have no plans to speak to him.” Should the trade deal fall through we could be back to square one, setting U.S.-Chinese relations back years, and hurting the global economy for years to come. 

Don’t panic

Despite all of this doom and gloom, there is no need for long-term investors to panic. There is no hiding from the hurt that COVID-19 will continue to cause, and re-closures seem inevitable now. But, a long-term outlook and a diversified portfolio are going to make all of this irrelevant in 10 or 20 years. The market is a cyclical beast, meaning that should it crash once more, it will simply represent a unique buying opportunity for long-term investors. 

We’ve already seen a host of new at-home winners in Netflix (NASDAQ: NFLX), Zoom (NASDAQ: ZM), and more, so investors simply need to adapt and be patient. The easiest way to protect yourself is to take control of your financial future. That’s where our recent OWN It product comes in. Click the link below for more information. 

MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.