COVID-19 vaccine must be released soon or stock market could drop more than 10%: Goldman Sachs

Brian Sozzi
·Editor-at-Large
·4 min read

With the presidential election in the rearview mirror (in the technical sense), Wall Street thinks the resurgence in the COVID-19 pandemic across the world will become top of mind for market goers.

And if positive news on the vaccine front isn’t received soon, the bottom could drop out of the market amid fears of a sharp slowdown in global economic growth and corporate profits in early 2021.

Goldman Sachs strategist Dominic Wilson estimates that if a COVID-19 vaccine doesn’t begin to be distributed until after the first quarter of next year, the S&P 500 could drop 11.4%. The small-cap Russell 2000 —which focuses on mostly U.S. companies — would be at risk of a 17.2% decline. Wilson thinks the tech-laden Nasdaq Composite would fare the best, but not by much — it would fall by 9.3%.

The outcomes for the major equity indices would be starkly different if the vaccine is distributed in the first quarter of 2021 — Wilson projects an 11.3% rise in the S&P 500, an 18.3% pop in the Russell 2000 and a 9% advance for the Nasdaq Composite.

“While processing the U.S. election continues to be investors' primary focus, markets appear to have moved a long way towards pricing the outcome. If that is the case, focus is likely to begin shifting back towards the vaccine and broader growth outlook, and the likely delivery of vaccine news in the next few weeks may be the next key event risk,” Wilson wrote in a note to clients. “By our estimates, current asset prices reflect a pricing of a slightly higher than 50% probability of an early vaccine approval, so we also see downside risk in the case of a delayed vaccine, with comparable moves in the other direction if the market ultimately comes to believe in significant delays in the vaccine timeline.”

Investors’ biggest concern post-election

The race to find a vaccine got a boost on Monday.

In a new study, a vaccine developed by Pfizer and partner BioNTech SE was found to be more than 90% effective in the first 94 subjects infected by COVID-19 and had at a minimum one symptom. The news sent Dow futures surging more than 1,100 points.

There are 11 COVID-19 vaccines currently in Phase 3 trials around the world, according to New York Times data. Moderna and Pfizer are generally viewed as being among the U.S. companies furthest along in developing a COVID-19 vaccine.

ANKARA, TURKEY - OCTOBER 27: Injection syringe of the phase 3 vaccine trial, developed against the novel coronavirus (COVID-19) pandemic by the U.S. Pfizer and German BioNTech company, are seen at the Ankara University Ibni Sina Hospital in Ankara, Turkey on October 27, 2020. This vaccine candidate, within the scope of phase 3 studies, was injected to volunteers in Ankara University Ibni Sina Hospital. (Photo by Dogukan Keskinkilic/Anadolu Agency via Getty Images)
ANKARA, TURKEY - OCTOBER 27: Injection syringe of the phase 3 vaccine trial, developed against the novel coronavirus (COVID-19) pandemic by the U.S. Pfizer and German BioNTech company, are seen at the Ankara University Ibni Sina Hospital in Ankara, Turkey on October 27, 2020. This vaccine candidate, within the scope of phase 3 studies, was injected to volunteers in Ankara University Ibni Sina Hospital. (Photo by Dogukan Keskinkilic/Anadolu Agency via Getty Images)

Wilson’s blunt take on the market comes amid a surge in COVID-19 infections and deaths in recent weeks.

New daily coronavirus cases in the U.S. hit a fresh record of 128,000 on Saturday. The number marked the fourth straight day of new infections above 100,000 in the U.S., according to data from Johns Hopkins. On Sunday, global coronavirus cases eclipsed the 50 million mark.

Data such as this has ratcheted up concerns on the Street over more state-mandated lockdowns, which would come at the expense of the economy. The stock market’s post-election rally doesn’t reflect the economic reality of the pandemic, strategists say, raising the potential for downside risk.

“COVID has replaced election uncertainty as the major source of investor worries about equity markets,” warned EvercoreISI strategist Dennis DeBusschere.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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