Skip to main content

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

www.soundasset.com








Comments

Popular posts from this blog

Sound Advice: July 8, 2020

Jobs Are Up, But So Are New Infections Through the spring months, m ost of the economic data was extremely negative, with record declines in employment and consumer spending.  The speed of that decline had no modern precedent. We are now in a recession.   The shortest recession on record occurred in 1980 and lasted just six months.  Second place goes to a seven-month recession in 1918-19, which was tied to the Spanish flu pandemic.  The big question is: When will this recession end? Given surprisingly strong data in May, April may have been the bottom of this economic cycle.  If so, it will have been the shortest recession on record.  With massive support from the Federal Reserve, the federal government, and the reopening of previously closed businesses, employment surged unexpectedly.  At the same time, pent-up demand, stimulus checks, and generous unemployment benefits led to a reacceleration of commercial activity. Still, not all is rosy.   In his recent testimo

Sound Advice: May 13, 2020

Reality Check On the heels of the market plunge of late February and most of March, investors did a sharp about-face in April, bidding up shares at one of the fastest rates in recent history.  Although this recovery probably provided at least temporary comfort from the plunge, it would be unreasonable to view the rebound as a sign that things are all better.  They are not. For one thing, we are now in the midst of earnings reason, when companies report their quarterly results.  Some may have good news for the March quarter, but as we move through the current calendar quarter, only a few will be able to show continuing improvement.  Against the broad backdrop of U.S. business history, the months just ahead will almost certainly prove to be among the worst, from the standpoint of year-to-year comparison. With more than 30 million people filing claims for unemployment insurance, it would be difficult to expect anything other than bad economic news.  Who knows how many of these

Sound Advice: July 22, 2020

Fixed Income: In a Fix Typically, the construction of an investment portfolio has begun with an approximate balance of 60% in equities and 40% in fixed income instruments.   Fixed income generally means bonds, but that includes bond funds and exchange-traded funds holding bonds.   The equity portion is intended to be the driver of capital appreciation over extended periods of time and the fixed income portion is supposed to provide stable, albeit more moderate ongoing rates of return. The theory behind this approach is that as the time periods measured have lengthened, the relative risk of holding equities has diminished while the returns they have generated have been higher than those of other asset classes.   What equities do in the short term, even a year or two, is often anybody’s guess.    To the extent that fundamental analysis can help toward determining future equity values, investors need to look ahead three, four, five years or more before reasonably expecting t