Pfizer’s pre-market announcement yesterday that their COVID-19 vaccine was 90% effective sent shockwaves through the market.
Stocks were pushed back to all-time highs. Oil rallied.
Tech tanked, as did COVID-related work-from-home stocks, gold, and the US Dollar.
Most of this makes sense. If an effective vaccine were imminently available to the market, then it would be possible for people to resume “normal” activity.
Activity like flying, for instance, which constitutes about 5% of global oil demand. In the US, air travel remains down 65% from March levels according to TSA traveler throughput data.
Source: TSA, Bloomberg
Or returning to work in the office, which remains around 30% below pre-COVID levels.
Source: TSA, Bloomberg
And if we’re going into the office, we’d be relying less on technology to connect with co-workers. That means far fewer Zoom calls – something to which all of us are looking forward. Apparently, so much so that the stock is down more than $200 over the past month.
As weather has shifted colder in much of the country, reservations reported by Open Table have fallen dramatically.
Source: Open Table
As such, a return to “normal” activity would also mean a sorely needed boost for restaurants. So obviously, they rallied.
And finally, normalcy also means that there’s no longer a need to protect against downside for risky assets. So naturally, safe haven assets like gold, the US Dollar, and bonds all just sank as the broader market rallied.
Each of these things are completely reasonable assumptions to make, with one possible exception.
That anything at all has meaningfully changed.
Do You Even Peer Review, Bro?
The first thing that stuck out to me was that this was an “interim efficacy analysis” based on just 94 cases rather than the actual results of their ongoing clinical trial of nearly 44,000 people.
Source: Business Wire
Don’t get me wrong, it’s good news. But there remains a looooooooong way to go.
First, Pfizer has to complete stage 3 of their clinical trial and apply for emergency authorization from the US Food and Drug Administration. If that all goes according to plan, they could receive approval by the middle of next month. That would set the stage for rolling out the first round of vaccines by the end of the year, of which Pfizer expects to make 50 million available.
There are some caveats there, too, however.
First, Pfizer’s vaccine requires two doses, so in this case, 50 million really means 25 million people.
More importantly, perhaps, distribution facilities must be able to store the vaccine. And as it turns out, that requires a facility that can deliver negative 70-degree temperatures.
Oh, and that’s Celsius, not Fahrenheit.
Sutter Health says they’ve already committed $100,000 on 14 specialty freezers to accommodate the vaccine, and similar cost burdens could stress health care facilities already strained by COVID-19 outbreaks.
The logistics and transportation will also be challenging. FedEx and UPS took the step of adding mobile cold-storage units, or freezer farms, to their transportation networks. That way, local facilities that can’t afford or don’t have the space for such a facility will have some sort of backup.
Moreover, last-mile delivery is made by packing the vaccine in dry ice. And demand for the frozen form of carbon dioxide has become so high that producers can’t keep up. In other words, the market has developed a shortage.
In other words, there’s reason to be skeptical that everything is going to go swimmingly for Pfizer, or for any other vaccine producer. And because of that, we need to have a reasonable timeline on which to base our expectations.
For these purposes, I like to look at sector-level experts for guidance. Barclays’ team that covers the small and mid-cap biotech space expect roughly 660 million doses to be available by the middle of next year. That puts us on a path to be majority vaccinated by the end of 2021.
Source: Barclays US SMid Cap Biotech Team
Again, don’t get me wrong, that’s great news… but it’s slow.
And crude oil’s rip here means that global producers in the OPEC+ cartel are going to want to put as much out into the market as they can in the near term.
Because of that, the US is going to have to be where any market adjustment occurs. And as such, I’m fading this move higher, adding another ½ stake to Proshares Ultrashort Bloomberg Crude Oil (NYSEArca: SCO).
In turn, that means that the broader market, which has been very correlated with oil and just put in a triple top, is likely to head lower as well.
Source: Seawolf Research
I mean, look at all these consecutive gaps up…it might take some time, but those are going to get filled.
And the knock on effect there will be a return to safe haven assets like gold and the US Dollar, which caught very strong bids at previous support levels. Historically, the two assets have had an inverse relationship to one another, but over the last few years, that has broken down… especially during several periods since the pandemic took hold.
Source: Seawolf Research
Because of that, I also want to add a ½ stake to Proshares Ultra Gold (NYSEArca: UGL)…it’s just too cheap.
And regardless of what happens with regard to the election, we know that whoever is in power is going to have to play fast and loose with monetary and fiscal policy in order to support the economy.
And that means gold wins… ›no matter the circumstance.
All the best,