Positive reports on the efficacy of Covid-19 vaccines from Moderna and Pfizer are extremely good news for a world battling a crippling pandemic.
This just in: Moderna has announced that per early results, its Covid-19 vaccine is 94.5% effective.
Stocks — which jumped dramatically when Pfizer said its vaccine was more than 90% effective last Monday — are rallying again. Futures of the S&P 500, which hit an all-time high on Friday, are up sharply. The Dow is also in record territory.
Breaking it down: Wall Street sees positive vaccine developments as a major confidence booster, firming up expectations for a big economic rebound next year. If companies have faith that vaccine distribution can begin in late 2020 or early 2021, they can start to make more concrete plans for the future.
Unfortunately, vaccines won’t prevent an extremely tough winter. Many European countries are still under modified lockdowns, and the United States surpassed 11 million coronavirus cases on Sunday. At least 45 states have reported more new infections this past week than the previous week, according to Johns Hopkins University.
“The good news on vaccines is tempered by the fact that they won’t come soon enough to prevent a difficult winter for many economies,” Neil Shearing, group chief economist at Capital Economics, said in a note to clients on Monday.
The contraction in activity between October and December expected in Europe won’t be as bad as what countries experienced this spring.
“Clearly the lockdowns this time around are much less stringent than they were earlier in the year,” Ben May of Oxford Economics told me, noting that schools mostly remain open.
He also pointed to a lower fear factor, which is likely to boost the economy through decreased voluntary social distancing, and a healthier environment for exports.
Oxford Economics now predicts that global growth will come in around 0.7% for the fourth quarter, compared to roughly 7% between July and September.
“The pace of growth in [the fourth quarter] has fallen back very sharply,” May said.
The global situation is made better by the recovery in China, which said Monday that industrial production in the world’s second-largest economy rose nearly 7% last month. Retail sales rose by slightly more than 4% — the fastest pace this year.
Big picture: News on the vaccine front does change the outlook for 2021, however. “It’s possible to believe that life will start to become a bit more normal next year,” Shearing said.
May said that indications there will be viable vaccines firms up expectations for a sizable rebound in activity by the middle of next year. Per Shearing, if all goes well with immunization, top economies could “return to pre-virus levels of output around six months earlier” than expected.