Great News on the Vaccine Front; Not-so-Great News on the Case Count Front

Nov 13, 2020 | Nick Scholte


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The light at the end of the tunnel got brighter, while the tunnel itself got darker. Nonetheless, the visibility "to the other side" makes me incrementally more positive on the market outlook... but additions will only be made on market weakness.

To my clients:

At the end of this week’s update is a link to a website produced by a client of mine. If nothing else, I’d encourage clients to scroll down to this section to decide if they might like to visit the site. I’ve found it to be extremely useful to my own tracking of Covid-19 data and trends.

It was an up week for North American stock markets with the Canadian TSX finishing up 2.4%; the U.S. Dow Jones Index finishing up 4.1%; and the U.S. S&P 500 finishing up 2.2%.

Stock markets rocketed up to start the week, fueled by the feel good weekend news (for many… remember though that a staggering 70 million+ did vote for Trump) that Joe Biden had won the U.S. election and the Monday pronouncement from Pfizer that its vaccine candidate has produced exceptionally strong results. I’ll not dwell on the election outcome. I’m personally pleased that Trump is being shown the door and I hope there is a return to some semblance of civility and objectivity in political discourse. The better news may perhaps be the apparent split Congress which will prevent the Democratic administration from impulsively pursuing the extremes of their platform. Centrist policy with checks and balances has proven a winning formula in the past – at least when gauged by market performance.

I do want to spend a bit more time on the vaccine news. The Pfizer announcement is categorically fantastic news. At greater than 90% protection, the observed efficacy of its vaccine candidate is significantly better than the World Health Organization’s target of ~ 70%. It’s true that this remains a company claim at this point, and there has been no peer or agency review of the trial data, but I hope/suspect that the claim will bear out under scrutiny. Pfizer expects to have 50 million doses available before year end, and another 1.1 billion doses available in 2021. However, it is important to note that this is a two dose vaccine, so the number of people who could be vaccinated with the drug would, at most, be no more than half of the doses to be made available. Remember, the global population exceeds 7 billion, so, on its own, the Pfizer vaccine is not enough.

Thankfully, there are more than 100 vaccine candidates being pursued. One being pursued by Moderna Inc. apparently uses an identical methodology/platform as the Pfizer vaccine. As such, Dr. Anthony Fauci has stated he would expect the efficacy of the Moderna candidate to be similar to that of Pfizer’s (+/- a couple of percent).

I understand that there are three major vaccine methodologies being pursued. The Pfizer/Moderna vaccine candidates use one of these methodologies (as do the candidates of a number of other pharmaceutical companies), while other pharmaceutical companies around the world are largely pursuing the two remaining methodologies. The ins and outs of the science is not particularly relevant and, in truth, I only superficially understand it (although in Pfizer’s case the technique involves targeting the “spike protein”, a picture of which  can be found at the top of this post). What is more relevant is that multiple channels, by multiple companies, are being pursued and the results are now just beginning to come in. I’d expect several more such announcements in the weeks ahead (Johnson and Johnson, a company held in client portfolios, is speculated to be making such an announcement next week).

I reiterate that this is fantastic news. A tangible light now shines at the end of the Covid-19 tunnel. Unfortunately, the tunnel itself is growing darker by the day, and it is destined to get much darker in the days, weeks and handful of months ahead. U.S. new cases topped 160,000 yesterday. 200,000 will inevitably be hit soon. Canada’s daily cases are likewise surging. Europe’s surge began many weeks ago. While these surges are not proving as proportionately deadly as earlier waves of the pandemic, it is certain that in absolute numbers, deaths WILL increase through year end. Given the much higher daily infections being reported now, I suspect daily deaths in the U.S. will ultimately equal, and perhaps surpass, the numbers seen during the first wave in the U.S. in March and April. Targeted lockdowns, stay at home orders, curfews, business restrictions and mandated small gathering sizes are beginning to crop up with increasing regularity. Certainly these measures are not as extreme as early in the pandemic and, no matter how high daily case counts climb, I’d doubt governments are willing to take such far-reaching measures again. But again, smaller, more targeted restrictions supplemented by full lockdowns in particularly hard-hit sub-regions are cropping up with greater regularity and the pace of such restrictions is sure to accelerate. This WILL get reflected in future economic data, and will likely lead to periodic market weakness.

So the question becomes how much will markets try to look through the near-term damage that looms? How much does the vaccine-fueled recovery on the other side of the dark days ahead compensate for this immediate damage? I’m confident that markets are going to experience large schizophrenic shifts in sentiment as the push and pull of this battle is waged. It happened this week. As written in the open above, markets rocketed higher on Monday, but in the days that followed were marked by at least two sessions of significant declines in very volatile action. Myself, I find my own sentiment shifting to the optimism that “the other side” of the pandemic will bring. As such, I’ll treat significant market declines brought about by heightened volatility as an opportunity to add equity (i.e. stock) to portfolios. As long written, I anticipated equity positioning to perhaps reach slightly greater than the neutral target set in individual client Investment Policy Statements. Now, I find myself contemplating edging further into a slightly overweight position IF the opportunity is presented via market weakness.

I’ll mostly end it there for this week. However, as noted above, I have a client who, over the past many months, has incrementally put together what I believe to be the most useful Covid-19 data tracking site available on the internet. This client (an engineer) found that the widely available data tracking sites produced charts and data analytics that didn’t quite “fit his eye” in a way that worked for him. So purely for his own interest, he began sourcing the raw data and re-formatting it in graph and chart presentations that worked for him. I’ve been lucky enough to have access to these charts for many months now and have cited them in these weekly updates from time to time. For what it is worth, his charts fit my eye also. The site is not flashy or overtly pretty, but it is clear and concise and worthy of a look. You can navigate to various parts of the world via the button tabs at the top of the home page. I’ve chosen to link the “U.S. and states”, but Canada, Europe and other regions are also available via these buttons. Be sure to scroll to the bottom of the linked page (below the graphs) to a sortable data analytics table that is also very useful. My client did ask that I add a disclaimer that the site he has put together is a hobby project and may be down at any given time as he tinkers with it. Here is the link: http://covid.pacificloon.ca/us.html

That’s it for this week. All the best and stay safe,

Nick

Nick Scholte, CIM, FCSI

Vice-President & Portfolio Manager

Scholte Wealth Management
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