2021: The Year Of The Vaccines
According to the Milken Institute, there are 179 different vaccines being developed to combat coronavirus, including 17 now in clinical trials. These vaccines include traditional vaccines along with a number of novel approaches. While it is very difficult to handicap the success of any one of these efforts, the variety of the techniques, along with the resources being devoted to them suggests that some vaccines will likely be approved around the world in either late 2020 or early 2021.
It should be emphasized that the distribution of vaccines is likely to be a messy process. First, while pharmaceutical companies, with government and private sector help, are ramping up production facilities, the production and distribution of enough vaccine to inoculate the U.S. population would obviously be a project requiring many months at a minimum. Second, according to Dr. Fauci, the director of the National Institute of Allergy and Infectious Diseases, a good vaccine is more likely to be 70-75% effective than the 97-98% effectiveness of the measles vaccine (Source: CNN interview, Friday, June 26, CNN.com). Finally, a CNN poll conducted in May found that 33% of Americans would not get vaccinated even if a vaccine were available at low cost.
All of this suggests that even as a covid-19 vaccine began to reduce infections, getting past the pandemic will still be a multi-pronged effort in 2021.
Some immunity in the population from the pandemic itself will have an impact. Using the WHO’s latest estimate of a 0.6% mortality rate, a further 1,000 deaths per day in the U.S. over the next year would leave 25% of population with some immunity of unknown duration (Source: “The Pandemic’s Big Mystery: How Deadly is the Coronavirus?” New York Times, July 4, 2020). This would, of course, be the very worst way to weather the pandemic, as apart from the terrible toll in human life, there would be permanent health impacts on many who survived a tough bout with the disease.
On a more positive note, 2021 should see better treatments reducing the fatality rate and continued social distancing, testing and contact-tracing should enhance the impact of the vaccine in reducing the spread of the disease. This suggests that those countries and states that are doing the best job in battling the disease in the absence of a vaccine may also be best positioned to achieve early success over the virus in 2021.
Investment Implications
For the economy, the road to full recovery, like the second half of the road to New York, will be a slow one. As we enter the second half of 2020, this does not seem to be fully appreciated by global equity markets, suggesting the need to hedge equity exposure. However, within equity markets, as always, there are opportunities, particularly among companies that are less exposed to the pandemic and have the balance sheet to endure a slow recovery. In addition, dividend-paying stocks in less-exposed sectors should continue to look attractive to income investors given extended monetary easing. Finally, investors should continue to monitor international progress in the battle against the pandemic. 2020 has been the year of the virus and 2021 should be the year of the vaccine. However, those nations that have the discipline to suppress the virus today and efficiently distribute a vaccine in 2021 should be at an advantage in a still slow road to recovery.
David Kelly is chief global strategist at JPMorgan Funds.