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Sound Advice: May 20, 2020

Vaccine In Sight?

Why do stock prices change?  Over extended periods, the main reasons are changes in underlying profits.  That's what Wall Streeters call fundamentals. When companies make more money, their shares rise . . . over time.  And vice-versa.

But on a day-to-day basis, fundamentals are often meaningless.  So on days when the Dow Jones Average rises or falls 5% or more, you can be sure that there's no corresponding change in fundamentals.

What's going on when this happens?  It's all about fear and greed, the polar opposite forces that rule the short term.  And now, once again, a tidbit of apparently good news has investors working on a big one-day lift-off.

The news is from Moderna, a Cambridge, Massachusetts company that has had encouraging results from a Phase One trial of a new vaccine for Covid-19.  This vaccine uses messenger RNA, or mRNA, to stimulate production of neutralizing antibodies.

The initial test included only 45 participants, but the vaccine produced antibodies in all of them.  Three different dosages were evaluated.  All three appear to have led to the desired result, but the highest dosage had some temporary side effects.

Moderna is now moving toward a Phase Two trial with 600 participants.  If the Phase Two trial is successful, the Phase Three trial, which would have thousands of participants, could begin in July.  In addition to concern about efficacy, there will be a focus on side effects as well as additional data needed on the possibility of reinfection after recovering from the virus.

Phase One trials, the initial human trials, deal with safety and efficacy.  Phase Two trials deal with efficacy and side effects.  Phase Three deals with efficacy, effectiveness, and safety.

One more thing about Moderna: Following the vaccine news, investors bid up the stock by 20%. Moderna announced the filing of a $1.25 billion offering of common shares to provide funding for manufacturing and distribution.  That news led to a pullback in the stock's price.

It's important to put all of this in perspective.  Even with the most extraordinary efforts, the earliest dates for initial availability of this vaccine would be the first quarter of 2021.  And it will take exceptional coordination of manufacturing and distribution to reach the point of general availability.  That might well be a year or more away.

In the interim, we will have to continue dealing with precautions such as social distancing and masks to guard against the exposure to infection.  This is not a pleasant prospect, but it is an essential prerequisite.

Life in 2020 has been and will continue to be different.  Business conditions are dreadful and digital life has temporarily replaced real life.

As time passes and confidence in the coming recovery builds, there will be a more substantial basis for Wall Street enthusiasm.  In the quarters ahead, we will have to bridge the broad abyss of trying business times.

Better times lie ahead, beyond the abyss.

N. Russell Wayne, CFP


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