Market Commentary | December 7, 2020

A Vaccine: The Best 2020 Holiday Gift

A Vaccine: The Best 2020 Holiday Gift

Key Points

  • A COVID-19 vaccine could start being administered globally this week.

  • The planned rollout is good news that has lifted the stock markets around the world. But the reality of the rollout faces risks that could extend the time frame for mass immunizations.

  • We expect markets to be volatile in coming months while the threat of new lockdowns weighs against the hope of recovery, although we believe we may be on the verge of a period of international stock market outperformance.

U.K. Prime Minister Johnson said the Pfizer/BioNTech vaccine should start being administered this week now that it’s been approved for emergency use and the first doses from Europe have arrived. The U.S. isn’t far behind with the Food and Drug Administration set to meet on December 10 to discuss the vaccine. Canada’s regulators have also indicated that they are close to approval. Submissions for approval of Pfizer’s vaccine have taken place in Europe, Australia, and Japan, with plans to submit applications to other regulatory agencies around the world. Moderna’s vaccine is expected to be reviewed in the U.S. this month and AstraZeneca’s vaccine could be reviewed late December/early January in the U.K. Russia said more than 2 million doses of its Sputnik V vaccine will be ready for use this week. A vaccination could be the best holiday gift imaginable for many people – even though relatively few will be able to get the first shot before the end of the year. 

Hopes of a vaccine-led economic recovery in 2021 have propelled global stocks to new records. Let’s take a look at what the rollout may mean for investors.

Who gets it and when

The U.K. and U.S. are likely the first developed market economies to have access to the COVID-19 vaccine. Initial supplies are limited, so guidelines prioritizing who may have access have been issued. Guidelines for priority vary by country (and by state in the U.S.), but in general, the initial doses will be given to health care workers, the elderly living in health care facilities and their caregivers. Subsequent doses will go to high-risk individuals, followed by essential workers. Only after these categories of people have been vaccinated will the vaccine begin to be administered to the general population. Availability of vaccine supplies will initially be a limiting factor.


Risks to the rollout

The planned vaccine rollout has lifted the stock markets around the world. But the reality of the rollout faces risks that could extend the time frame for mass immunizations to take place:

  • Very cold storage requirements, strict rules on shelf life and how many times freezers can be opened could delay distribution. The Moderna and Pfizer vaccines ship at -4 to -94 degrees Fahrenheit, respectively.
  • Information technology systems need to work smoothly to track the prioritization guidelines, deliveries, inventories, allocations and reminders for people to return for the second shot of the same vaccine.
  • Mutations of the virus could change the efficacy. Also, the 90%+ efficacy seen in the trials may not be repeated in the absence of social distancing and facial coverings. 
  • It is unknown how long protection lasts.
  • Polling indicated that most people were unwilling to be vaccinated until recently. Willingness may be improving with additional transparency and news of vaccine high efficacy.
  • Vaccines may work differently for different demographics. For example, elderly people typically have lower immune responses.
  • Supply chains could be stretched for things like vials, syringes, needles, etc.
  • While many countries have placed a lot of orders for the vaccine, as you can see in the chart below, these figures include both initial purchases and options to buy more, including orders with companies whose vaccines have not started Phase 3 trials yet. Therefore, order metrics may greatly overstate the actual number of doses that will become available for each country.

Orders of all vaccine doses by country per capita


Source: Charles Schwab, data compiled from individual company and government reports as of 12/4/2020. For illustrative purposes only.

.It’s worth noting that North American and European economies have secured more doses per capita than Asian countries. Asia’s largely successful containment of the virus without a vaccine and the planned domestic manufacturing of the vaccine in the U.S. and Europe both help to explain the discrepancy. Within Asia, major emerging markets, such as China, Russia and India, are likely to have access to domestically developed and/or manufactured vaccines.

Economic impact

While the initial doses may quickly begin to save lives, their impact on the economy may be muted—especially in the travel and entertainment parts of the economy, which remain the areas most negatively impacted by COVID-19. We believe that the most optimistic timing for the next stage of economic recovery is not until the second half of 2021.This assumes mass immunizations by next spring. The latest world economic outlook from the International Monetary Fund (IMF) points to a sharp rebound, as you can see in the chart below. Any rebound will not be allocated equally among all sectors of the economy, and many things need to go right, including a smooth distribution process, no manufacturing or supply chain hiccups and widespread adoption of the vaccine. 

Declines in 2020 GDP expected to flip to gains in 2021


Source: Charles Schwab & Co, as of 11/27/20. International Monetary Fund forecasts, World Economic Outlook Oct. 2020. Ranked in order of largest difference between 2020 and 2021 growth.  Forecasts contained herein are for illustrative purposes only, may be based upon proprietary research and are developed through analysis of historical public data.

Stock market impact

The stock market is always looking forward, characteristically rising even before the vaccine had even been approved for emergency use. However, there is some risk if any of the setbacks we noted occur. As the U.K. and U.S. are the first countries with transparent processes to rollout the vaccine, we will be watching both countries for:

  • How quickly distribution challenges are overcome
  • How quickly manufacturing can be scaled up and interruptions minimized
  • Adoption – will people clamor for the vaccine or resist?
  • Any adverse events from those vaccinated in the initial priority groups

There is potential for stock market disappointment if vaccine distribution, adoption, or efficacy lags. Bottlenecks with virus testing capacity and turnaround times in both the U.K. and U.S. has contributed to some  skepticism about the ability to roll out an even larger operation such as widespread vaccination, but the rapid increase in stock market returns likely indicate optimism that vaccine rollout has better planning and organization. The market has not yet discounted the potential of a return to lockdowns in early 2021 if December holidays result in new waves of cases and hospitalizations. Although lockdowns this fall were less strict than those during the spring of 2020, they still had some negative economic impact.

We expect markets to be volatile in coming months while the threat of new lockdowns weighs against the hope of recovery. The “COVID-winners” propelled the performance of the top 20% of the MSCI World Index this year, while 80% of the index has suffered a loss. This performance could flip in 2021 and bring the outperformance of COVID-laggards, such as cyclically oriented international markets, as investors look past the near term and toward an eventual vaccine-led recovery in 2021. You can read more about this in our 2021 Global Outlook: New Cycle New Leadership.