- Coronavirus vaccine developments are a more important market catalyst than the US presidential election and third-quarter earnings, Goldman Sachs said Friday.
- The odds of widespread vaccine distribution by the first quarter of 2021 rose to 71% in early September from 39%, suggesting a resumption of regular economic activity might arrive sooner than anticipated.
- Health and Human Services Secretary Alex Azar has also given “upbeat commentary” on a vaccine being available for vulnerable populations by the end of 2020, the bank said in a note.
- While election volatility and earnings reports can provide a temporary lift to stock prices, the rollout of a viable vaccine is the best way to bring stock fundamentals back to pre-pandemic highs.
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Investors face several “substantial cross-currents” over the next few months, Goldman Sachs strategists said Friday.
The US presidential election is mere weeks away, and precedent suggests the days heading into and immediately after the election will boost stock market volatility. Third-quarter earnings are also on the horizon, giving investors their latest look at how companies are recovering from the pandemic’s economic fallout.
Yet Goldman Sachs believes a potential coronavirus vaccine is the most important driver for stock fundamentals. The odds of widespread vaccine distribution by the first quarter of 2021 climbed to 71% in September from just 39% in late August as multiple candidates entered late-stage development, the bank said in a note to clients.
Health and Human Services Secretary Alex Azar also gave “upbeat commentary” on a vaccine being available for vulnerable populations by the end of the year. Even if vaccine uptake is slow, antibody treatments in development offer “a potential bridge” to broader availability, Goldman said, adding that dynamic is “potentially underappreciated by investors.”
The advent of a viable vaccine could accelerate reopening plans and help companies’ earnings rebound to pre-pandemic levels. Various experts, from Federal Reserve Chair Jerome Powell to Wall Street executives, have argued that the path of the US economic recovery hinges on the path of the coronavirus. Should a vaccine fail to materialize, fundamentals will remain stifled for much longer.
As for near-term market strategy, Goldman expects large-cap stocks to outperform during earnings season. The “consequences of the semi-frozen economy” will slam profits and keep most companies from providing meaningful forward guidance. Sales will shrink in the energy and industrials sectors, while health care, consumer staples, and information tech companies should see robust revenue growth, the bank added.
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