Vaccine information is giving the financial outlook a much-needed enhance
A health care worker injects the syringe of the Phase 3 vaccine study into a volunteer at Ankara University's Ibni Sina Hospital in Ankara, Turkey, Oct. 27, 2020. This vaccine candidate was developed against the novel coronavirus pandemic (COVID-19) by the US company Pfizer and the German BioNTech company.
Dougkan Keskinkilic | Anadolu Agency | Getty Images
The coronavirus and the economy have always been closely linked, but the relationship took a decidedly positive turn on Monday.
With the news that Pfizer had posted a success rate of more than 90% in its vaccine trials, came the first palpable feeling that if the eight-month Covid-19 nightmare did not come to an end, it would loosen its death grip, at least for the foreseeable future .
This is clearly good news for the US economy, which was in a technical recession in February.
"This is very good news in both the short and long term. In the short term, the stock market has rebounded which will boost household wealth. This is positive for future consumer spending," said Gus Faucher, chief economist at PNC Financial Services. "We are obviously not out of the woods. We will have setbacks, but hopefully that will get us on the right track."
After a record-breaking third quarter that helped offset most, if not all, of the damage from the early days of the pandemic, the outlook was unclear and looked gloomy. This is because the rising cases of coronavirus raised the prospect of a harsh winter with increased business processes and less commercial activity as people became more cautious.
American business had to shift significantly during the pandemic, adjusting to less travel and nightlife and more activities at home in work and personal life.
However, the Pfizer messages are sending a signal that things may get back to normal sooner rather than later.
"My big concern was that we would see slow growth for a long time as it would take some time for the economy to adjust," said Faucher. "If we have a viable vaccine, we don't have to reorganize as much."
Good dynamics despite increasing cases
The gross domestic product exploded in the third quarter at a growth rate of 33.1%, driven by an increase in consumer spending as well as residential and business investment. This helped offset some, but not all – likewise unprecedented – slump of 31.4% in the second quarter caused by a massive shutdown in March and April.
The economy relied largely on accommodative fiscal measures by Congress and an easy monetary policy by the Federal Reserve.
The data has been almost entirely positive lately. October wage growth of 638,000 was the latest sign of continued strength. The number of private employees rose by more than 900,000, in a sustained trend in which economic reports slightly exceeded Wall Street expectations.
Boosting confidence in the economy through vaccines provides an even stronger platform.
"The big news for me is how strong the economy already is," said Jim Paulsen, Leuthold Group's chief investment strategist. "What is underestimated is the delayed effect of past policies. It is well known that the effects of these measures are quite long-lasting, a year or more, and we are just stepping into the window of where this may become apparent."
While he has admitted that vaccine help won't come right away, it will "give the economy a lot of boost just in terms of raising animal spirits. I think you are talking about high growth," Paulsen said.
"The pandemic has greatly contributed to putting the American company into survival mode in a way that has never happened before," he added. "That means, in terms of profitability, that the entire corporate world is tuned for maximum operational efficiency, maximum profit sharing, and minimum breakeven point. So if you get additional demand that falls on the bottom line, it can be immense."
The markets rebounded strongly on the news, with major averages nearing new highs and the Dow Jones Industrial Average nearing 30,000.
In line with expectations
However, there has been some caution that much remains to be done and advances in the disease may still come in seizures and beginnings.
"This is great news, of course, although I haven't changed my forecast for the near term or next year," said Mark Zandi, chief economist at Moody & # 39; s Analytics. "It doesn't change the reality that the pandemic is raging and will likely result in businesses and consumers being a little more cautious for the next two or three months as we work on it."
"I have long expected that we will have an effective vaccine or vaccines that will be widely available or launched by the middle of next year, and I don't think this schedule will change, just align with this schedule," he added .
Another question was whether the latest developments would change Fed policy.
Central bank officials recently reiterated a political commitment not to hike rates even if inflation rises above the Fed's 2% target or if unemployment falls sharply. Stronger-than-expected economic growth could dissuade the Fed from its ultra-light policies, although most respondents on Monday said this was more because of the Fed's bond-buying and loan programs, rather than its interest rate stance.
"To move from expectations to the reality of the vaccine, we need to set the timetable for when the Fed believes rates will rise," said Steve Blitz, US chief economist at TS Lombard.
However, he does not see any significant changes in Fed policy until at least 2022. Meanwhile, he expects a gradual surge in growth, with the Fed reluctant to move until it sees a much tighter job market and strong outlook for national health.
"This won't change the economy in the fourth or first quarter of next year. You and I won't suddenly be sitting in an arena with 20,000 of our best friends or sitting in a bar with 100 of our best friends drinking and yelling at each other because I am Will get an injection in June, "said Blitz. "In terms of the overall economy, you will return to the world much faster as the damage done will turn out to be less than we initially expected."