As soon as this weekend, the Food and Drug Administration is set to grant emergency approval to greenlight a COVID-19 vaccine from Pfizer and BioNTech. Within hours of the approval, millions of doses of the vaccine will be ready for distribution as each state determines who gets priority. Although initial doses will be available for those that the states deem to be most at risk, the majority of the US population will likely need to wait until the spring or summer of next year before getting the vaccine.
The path forward for the U.S. economy will depend on the course of the COVID-19 pandemic. Although the likelihood the U.S. economy returns to pre-pandemic levels of output by the end of next year has increased, there is still a large amount of uncertainty surrounding the path forward. In the short term, we’ve seen both infection rates and hospitalization rates increase as states eased restrictions and holiday travel increased the spread of the disease. As a result, the chances of additional partial COVID-19-related lockdowns have increased, which will impact how markets perform in the short term as businesses assess the impact to their bottom lines to close out the year. Another critical component of how the markets weather the next few months depends on whether Congress will pass another coronavirus relief package to prop up the economic recovery as additional restrictions are placed on businesses and social activity due to rising case numbers this winter. Investors and businesses will be carefully watching the size of any proposed bill as Democrats and Republicans vie to find common ground of the scope of any new stimulus bill.
We’ve seen the US stock market already react favorably to positive news surrounding the effectiveness of the COVID-19 vaccine, with expectations set that the U.S. population could be widely vaccinated by next year. Any changes to those expectations, alongside additional short-term restrictions and updates on stimulus measures, will impact market performance well into 2021.
Companies are facing similar challenges abroad as European cities like London are facing increased COVID-19 restrictions and rising infection rates. Despite a “second wave”, the UK has already rolled out the first doses of the Pfizer-BioNTech vaccine, with other countries poised to approve and roll out the vaccine beginning this month. Positive inoculation news should help the EU loosen the additional restrictions and lockdowns imposed as a result of the COVID-19 resurgence experienced this Fall.
Although we’re far from returning to normal, the path to recovery is clearer now as we turn to 2021. While short-term volatility will remain high as a result of new developments on the vaccine front and infection rates, we remain disciplined to our investment strategy and continue to let our rebalancing policies dictate when to make buy and sell decisions.