COVID Vaccine: Silver Bullet or False Hope?
In folklore, a silver bullet is the only way to kill werewolves and other supernatural creatures. The notion has been a staple of horror movies for decades.
Many Americans are currently in thrall to their own financial folklore and it’s similarly farfetched: a coronavirus vaccine will soon come along and, like a silver bullet, kill the pandemic. Desperate investors cling to this hope.
I hate to be a spoilsport, but I firmly believe that a vaccine is beyond our grasp, at least in 2020. As you position your portfolio, you should assume that the COVID-19 pandemic will remain a threat for the rest of the year and maybe longer.
Vaccine hype aside, the pandemic has placed a spotlight on genuine opportunities in health services. Below, I pinpoint a revolutionary development in the pharmaceutical sector that’s poised to make early investors rich. But first, let’s look at the vaccine “pipe dream” that’s clouding Wall Street’s judgment.
Biology versus mythology…
Many government and business leaders have given up on the hard work of containing the pandemic. They’re simply praying for a silver bullet in the form of a vaccine. But there’s a chance we may never get a coronavirus vaccine, let alone get one quickly.
It takes years of research and development (R&D) and billions of dollars to develop a vaccine. The record for developing an entirely new vaccine is roughly four years. To be sure, the search for a COVID-19 vaccine is on a global fast track and sufficient resources aren’t a problem. The obstacle is basic biology.
The FDA has never approved a vaccine for humans that is effective against any member of the coronavirus family, which includes SARS and several viruses that cause the common cold. Health experts warn that the current strain of coronavirus is constantly mutating, making it particularly resistant to vaccination.
You’ve probably been hearing about several coronavirus vaccine candidates in development. Unfortunately, most of them are still in the laboratory and they aren’t even in Phase I trials. Clinical trials are a long, drawn out process even under the best of circumstances.
In recent months, stocks have sharply risen or fallen according to rumors over a vaccine. These rumors have invariably turned out to be hyperbolic. Base your investment decisions on the hard data, not wishful thinking.
The swoons of June…
I’ve repeatedly warned you that a V-shaped economic recovery is unlikely. Anyone who expects a rapid economic recovery is living in a bubble of misinformation.
The COVID-19 surge is real, it’s everywhere, and it doesn’t care if you’re bored with quarantine.
Nationwide, cases are up 30% compared to the beginning of June. Over the past week, 26 states have seen their coronavirus caseloads increase. New cases are up 77% in Arizona, 47% in California, 66% in Florida, 75% in Michigan, and 70% in Texas. Seven states have set records for the number of people hospitalized with coronavirus.
Businesses in several states are reclosing. New York, New Jersey and Connecticut announced that travelers from COVID-19 hotspots would be subject to a 14-day quarantine.
Small wonder that the stock market has been volatile in June. So far this month, the number of days the S&P 500 has swung 2% is 38.
Of course, options traders love volatility, because it invites opportunities for more frequent, higher risk/higher reward trading. There’s a greater range in price from which to potentially profit. Chaos sown by the pandemic has prompted options traders to boost their wagers on higher stock volatility.
However, mom and pop investors fear volatility because it generally coincides with an increase in risk. Last week witnessed further volatility with stocks ending the week in negative territory. The decline was triggered by a resurgence in coronavirus cases throughout the U.S. (see table).
Regardless, the rally this year has been remarkable. As of this writing Monday morning, stocks have rebounded 35% from their March 23 low and hover within 11% of their February 19 high.
The stock market rebound has been fueled by massive monetary and fiscal stimulus. The Federal Reserve has dedicated itself to shoring up the stock market. The major recipients of Fed bond purchases have been corporate giants, which in turn benefits investors. However, many of the indebted companies getting bailed out by the Fed are burdened with debt servicing costs that exceed profits.
What’s even worse, much of this debt is low-grade. Corporations took advantage of low interest rates after the 2008 crash to binge on debt. There’s currently $5 trillion in outstanding U.S. debt rated triple-B, up from $1.3 trillion five years ago and $686 billion a decade ago. That’s the most ever for companies rated triple-B.
The way I see it, the Fed is bailing out the previous bail out. Sooner or later, the central bank will run out of ammo.
The Fed can print money, but it can’t print jobs. If the recession worsens, this mountain of subsidized (and toxic) corporate debt could all go bad at the same time, sending financial markets into a tailspin.
Meanwhile, fiscal stimulus is reaching the end. Key lawmakers in Washington oppose extending the $600 weekly boost in unemployment insurance. They also oppose additional stimulus legislation. Personal and small business bankruptcies loom. The disconnect between Wall Street and Main Street will eventually wreak havoc on stocks. We can’t have a functioning economy without functioning consumers.
It’s difficult for investors to plan because markets are driven right now by headlines about the pandemic. Stocks cratered last Friday, after the European Union announced that it will ban most travelers from coronavirus-battered countries such as the U.S., Russia, and dozens of others when it reopens its borders on July 1.
Dismal earnings projections…
The stock market is forward looking and it’s driven over the long haul by corporate earnings. Those earnings are projected to be negative for the rest of the year. Most of the global economy was in lockdown in April, which means second quarter operating results are on track to be dismal.
According to FaceSet, the estimated earnings decline for the S&P 500 in the second quarter is -43.8%. All 11 sectors are projected to report a year-over-year decline in earnings, led by the energy, consumer discretionary, industrial, and financial sectors.
If -43.8% is the actual decline for the quarter, it will represent the largest year-over-year decline in earnings reported by the index since Q4 2008 (-69.1%). Analysts predict a year-over-year decline in earnings in the third quarter (-25.2%) and the fourth quarter (-12.7%).
The estimated year-over-year revenue decline for Q2 2020 is -11.2%, which is below the 5-year average revenue growth rate of 3.7%.
Don’t expect a fast turnaround in corporate earnings, even if lockdowns ended tomorrow. In previous recessions, from 1948 to 2009, it has taken roughly three years for earnings to return to levels reached before the downturn.
And yet, bullish sentiment has increased, largely due to stimulus and optimism over the pace of economic recovery. The percentage of Buy ratings on S&P 500 stocks as of today is 52.1%, above the percentage back in January (50.6%) before the pandemic-induced lockdowns.
This briefcase holds the key…
At the sector level, analysts are particularly optimistic about health care, which boasts a Buy rating percentage of 61%. And here’s where the picture brightens, because optimism over the health care sector is warranted.
The pandemic underscores the importance of biotechnology R&D. Biotech is a well-timed coronavirus play, but in these dicey economic conditions, you need to be highly selective.
Which brings me to a biotech-focused software firm that’s indispensable to what’s known as the “briefcase pharmacy.” This device can offer patients four major benefits that pharmaceutical companies can’t: personalized medicine, speed of production, low cost, and efficiency.
The briefcase pharmacy houses everything required to make new drugs in a 89-centimeter box. All that’s needed for the patient to receive tailored treatment is a bit of DNA.
If our research is correct, we could be mere days away from the FDA introducing the briefcase pharmacy to the world. At the heart of it all will be the company that made it happen. This biotech firm is the sort of “disruptor” that’s well equipped to weather economic and financial storms, because it provides a unique product that meets an essential service.
Looking to protect your portfolio and at the same time make money? The briefcase pharmacy holds the key. Click here now for details.
John Persinos is the editorial director of Investing Daily. You can reach him at firstname.lastname@example.org