Overall, the financial markets had a positive week. The S&P 500 finished the week higher by 3.2%, the technology-focused Nasdaq advanced 3.4%, and the small-cap Russell 2000 rose 7.6%. International stocks, as represented by the MSCI ACWI Ex-USA and MSCI Emerging Market Indices, fell by 2.6% and 1.1%, respectively. Investment-grade bonds, as measured by the Bloomberg Barclays U.S. Aggregate Bond Index, finished the week up 0.4%.
The markets’ performance resulted primarily from the continued development of a potential coronavirus vaccine and the gradual reopening of the economy. According to a report by CNN, all U.S. states have begun to reopen ahead of Memorial Day weekend. This does not mean that every corner of every state will be opening. As Pennsylvania residents certainly know, many states are reopening on a county-by-county basis. It is important to note that states that were among the earliest to relax shelter-at-home orders, such as TX, GA, and FL, have not seen a major spike in cases of COVID-19.
Biology (Epidemiology and Virology)
On Monday, Moderna released interim results from its Phase I mRNA vaccine trial. For most patients, antibody efficacy results were not yet available, which is not surprising at this stage. Whether or not antibodies are “neutralizing” the virus is the focus of Phase II trials. However, there are three specific points to note about this week’s report that contribute to broader implications for investors.
First, Moderna reported no “serious” adverse reactions among the vaccine recipients. It passed Phase I in which safety for humans is the particular criterion of success; Phase II of the trial will focus on the drug’s efficacy. Second, immunogenicity (the level of immune response created by the vaccine) increased according to dosage in all 45 of the human vaccine recipients, which is good news. Third, of the 8 patients whose detailed results were available, all had neutralizing antibodies in amounts similar to those seen in blood samples of recovered patients, which is more good news. Phase II and III trials, which will test the vaccine’s effectiveness, are expected to begin in July. Overall, “limited but very promising” is how to assess Moderna’s Phase 1 results, and equity markets reacted positively.
Sinovac, a Chinese biopharmaceutical company, also announced results from its monkey vaccine trials this week. For the highest-dosed monkeys, no viral DNA was found, and the vaccine apparently provided “sterilizing” immunity, which means that it could prevent the virus from replicating if enough people were vaccinated. Results from human trials will be the next important disclosure to evaluate.
The significance of this week’s vaccine trial results is this: We believe that it is becoming more probable that one of these or the many other vaccines being tested will work in the near to medium-term. Therefore, it is increasingly unlikely that the worst-case scenario will come to pass. Instead, it is more probable that we will avoid a multi-year coronavirus pandemic and the continued, widescale, economy-inhibiting mitigation it would involve. Whether Moderna, INOVIO, AstraZeneca, JNJ/Oxford, or another organization produces an effective vaccine — or, most likely, multiple effective vaccines from several organizations — the important point for forward-looking investors to appreciate is that the question is now more likely “when” and also “how many,” not “if” we will get a vaccine. We expect that this advance in the probability of vaccine discovery and production will boost the confidence that governments, businesses, and households can have in the ultimate success of economic reopening and social reengagement.
Tracking the Economic Re-opening Data
We continue to monitor closely both traditional and real-time (i.e., “high frequency”) economic data to best estimate the pace and trajectory of the economic recovery. As shown below on the left, overall spending trends are analyzed in real-time through Chase credit and debit cards. The graph shows a positive recovery after hitting a trough at the end of March. Although national spending across all categories remains 20% below where it was at the same point last year, the bounce-back from the low is promising, and the trend line is sloping positive (i.e., up and to the right). As shown in the chart below on the right, “card present” (i.e., physical) transactions (which excludes online shopping) remain 40% below 2019, but they have been increasing in conjunction with relaxed social distancing and shelter-at-home orders since the second half of April.
Both of these real-time spending indicators are improving, and notwithstanding some declines in traditional economic metrics, the increase in consumer purchasing activity has boosted investor sentiment.
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