Dalton — Let’s talk about when we might get a coronavirus vaccine, since that seems to be the best pathway to economic growth.
There have been 6.8 million confirmed cases of COVID-19 in the U.S. and 31.1 million worldwide, with a mortality rate of about 3%. While it appears as if the virus has hits a peak in terms new daily infection rates (so long as we don’t get the dreaded “second wave”), the economy remains burdened by forced business shutdowns aimed to keep us socially distanced.
The recent correction notwithstanding, one of the reasons the stock market has performed so well over the previous six months is partially based on optimism that a COVID-19 vaccine would be created relatively soon. A vaccine would allow the U.S. and the rest of the world to continue recovering from the deep global economic contraction. It seems worthwhile to explore when a coronavirus vaccine might be created and distributed.
- More than 150 COVID-19 vaccines are in development around the world, including dozens in the U.S.
- Seven U.S. vaccine candidates are in clinical trials with human participants, three of which are in Phase 3. (The first and second phases are primarily safety tests, and the third stage tests efficacy.)
- Goldman Sachs’ Superforecaster model says there is a 70 percent chance of a mass-distributed vaccine by the first quarter of 2021.
- Pfizer CEO Albert Bourla says that the “likely scenario” is that the company will be able to distribute a vaccine by year’s end (pending FDA approval).
- The head of biosafety at the Chinese Centers of for Disease Control and Prevention, Dr. Wu Guizhen, says that “ordinary” Chinese people could be given the vaccine by November or December. (China has already begun inoculating frontline workers, including Dr. Guizhen.)
- Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, said he would “put my money on November, December” for a vaccine to be proven safe and effective.
Most of the dozens of vaccines in development in the U.S. have received funding from the federal government as part of President Trump’s Operation Warp Speed program. Operation Warp Speed is a partnership among HHS, CDD, FDA, BARDA and the DoD. With almost $10 billion in funding, OWS has the potential to make its goal, which is to “deliver 300 million doses of a safe, effective vaccine for COVID-19 by January 2021.” Additionally, the World Health Organization is coordinating global efforts to deliver two billion COVID-19 vaccine doses by the end of 2021.
The odds of a safe and effective vaccine being created relatively soon seem good. Because of that, it’s hard for me to justify adding more defensive positions to my investment portfolio.
However, I do have some small hedges in play for other reasons. I expect to hold most of them through early November (which has nothing to do with elections) or until Jan. 20, 2021 (which has everything to do with elections).
On Friday, Sept. 18, Bespoke shared a graphic, seen at the top of this article, that reminded investors that, historically, the next two months can be a somewhat volatile period for the stock market.
Until mid-September, the daily price volatility of the S&P 500 is about +/- 0.70 percent. After that, volatility spikes into November. So, folks, get ready for it. But don’t go blaming the election.
After mid-November, as you can see in the graphic, volatility typically drops. If volatility doesn’t recede after the election on Nov. 3, I fear there will then be plenty of reason to blame the election.
Doomsday election scenarios
There shouldn’t be an Election Day in 2020.
I learned something recently: A whole lot of people vote by mail. The Wall Street Journal reports that, in 2016, 33 million ballots were cast by mail in the 2016 general election, accounting for 24 percent of the 140 million votes. In 2018, according to the U.S. Census Bureau, “40 percent of voters used an alternative voting method … other than voting in person on Election Day, such as early voting and voting by mail.” Five states — Colorado, Hawaii, Oregon, Washington and Utah — primarily conduct all-mail elections.
For 2020, a survey by the Democracy Fund + UCLA Nationscape Project found that more than one-third of voters intend to vote by mail for the November presidential election.
Mail-in ballots for 2020 are already coming in at record rates due to the coronavirus. In reaction to the pandemic, some states, such as California, Nevada and Michigan, will send all voters applications to allow them to vote via mail. This could pose a problem for the media — yes, the media.
Every four years, the media scrambles to be the first to call which Electoral College votes belong to which presidential candidate. At the end of the evening, we’re left with a feeling of who actually won the presidency. However, when the media calls the winner, we never really know for sure if they got it right until later. There are always mail-in ballots to be counted.
Mail-in ballots take a long time to sort and verify. In some states, officials cannot even open the ballots until after the Election Day is over. This summer, for some districts in New York City, that led to an entire month of contestation.
In 2018, mail-in ballots counted after the election flipped the declared election night outcomes of an Arizona Senate race and several California House seats. The survey by the Nationscape Project shows that of those planning to vote by mail, more than twice the amount plan to vote for Biden than Trump. This all makes me nervous about what could happen to the stock market throughout November.
Presidential election contestations are nothing new. We all remember Bush v. Gore in 2000, when there was a five-week period when we didn’t know who the next President of the U.S. would be. The stock market had already been in correction at the time, yet an additional 7% was wrung from stock prices during that period.
In 1860, after President Lincoln won, seven states attempted to secede from the union. There were street battles between political parties.
In 1876, a contested battle occurred all the way up until two days before the inauguration. Samuel Tilden eventually conceded the election to Rutherford Hayes after an alleged corrupt deal that led to talk of armed units marching on Washington. Those talks, fortunately, were quashed when sitting President Grant said, “Oh, yeah!? Bring it on, tough guys!” (I am paraphrasing a bit.)
In 1932, Hoover lost to Roosevelt. In the months following the election, Hoover would not help the president-elect prepare for the job. Hoover let banks fail, allowed European debtors to default with no repercussions and generally let the economy deteriorate. Hoover used this as a strong-arm tactic to get Roosevelt to give up the New Deal and accept his own policies.
What could happen in the 2020 election?
On the evening of Nov. 3, Election Day, we could see the media calling 270 Electoral College votes for Trump, giving him the win, followed by a month counting mail-in ballots that shift the election to Biden, then another month of contesting that count. There are only 78 days between the election and the inauguration on Jan. 20, 2021. We could get to inauguration day and still not be sure who the president is.
The two months-plus between election and inauguration are fraught with uncomfortable scenarios. Instead of an Election Day, the media could be patriotic and speak of an election “week” or “month,”or at least an election “process.” However, I doubt the media would pass on the opportunity for some good theater.
I am invested in the equity market for the long term because I expect a safe and effective vaccine to be created. In the shorter term, I won’t enjoy the volatility I expect through mid-November, but I’ll deal with it. The volatility that happens after the election should be more important than what happens before it. I’ll watch it for you.
This article originally appeared in The Berkshire Edge on September 23, 2020.