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Significant advancements in COVID vaccines and treatments were made last week by AstraZeneca and Pfizer/BioNTech.
Market Movers The S&P 500 dropped ~0.2% last week with significant volatility throughout the week, running up nearly 2% before losing all gains in the last two days. Investors are anxious as COVID deaths rise and the second CARES Act is under discussion. There’s a lot going on, but we’ll break it down for you so you know what to expect in the near future. Here are the details:
📉 COVID-related deaths are on the rise, but deaths per hospitalized case have dropped by 50%, demonstrating drug efficacy. COVID-related deaths exceeded 1,000 in a day for the first time in ~1 month. This is definitely a drawback for the recovery and stock market given deaths are the reason for more strict reopening measures, limiting economic activity. However, on a positive note, the number of deaths per hospitalizations have decreased by ~50% compared to the last hospitalization peak. We are seeing ~1K deaths per ~60K hospitalized now compared to ~2K deaths per ~60K hospitalized. Overall, this is a setback for the stock market, but the reduced mortality rate is certainly promising for the future.
📉 President Donald Trump signed four executive orders to reduce drug prices, but these orders may take months to implement, if at all. Yesterday, the president signed four executive orders that may reduce the pricing potential for big pharma companies. The orders include international price referencing and more discounts transferred to patients rather than middlemen. While these orders are concerning for pharma, they are old proposals that have had a difficult time being implemented in the past. This may be a move to appease voters as we near the election and signal to big pharma that nothing has really changed.
📉 Unemployment claims tick upwards for the first time in weeks, potentially reflecting re-opening pauses across the U.S. This week we saw a slight uptick in unemployment claims, which raised a red flag to investors on Thursday. However, this uptick in unemployment should not come as a huge surprise given pauses in economic reopening. The onset of COVID vaccines and treatments in the Q4 of 2020 or Q1 of 2021 should help economic reopening and reduce unemployment levels.
📈 The U.S. dollar is weakening, a sign of a weakening economy compared to the global economy, but beneficial for the stock market. The weakening U.S. dollar has been on the minds of a lot of investors as the strength of the dollar is often viewed as a representation of the economic strength of the U.S. However, the value of the USD is relative to other countries’ currencies and likely reflects the state of COVID for each country at this point in time. The Euro and Chinese Yuan has risen quickly as European countries and China have managed COVID well, which will lead to a quicker economic recovery. The U.S. has not managed COVID nearly as well. However, investors will likely turn to the stock market as the USD decreases as stocks see faster appreciation as companies continue to create “value” over time faster than inflation or the rate of currency devaluation. Investing in stocks is a way for investors to offset the decline in purchasing power for the USD.
📈 The second CARES Act is under discussion and will likely provide another round of stimulus checks and continued unemployment benefits. The Senate Majority has established a framework for the second CARES Act and is now reviewing details. It seems that the bill will include another round of stimulus checks, decreased unemployment benefits, and potentially a return-to-work bonus. The first CARES Act included high unemployment benefits to discourage individuals from going out and searching for work. However, with the goal of economic recovery in mind, the decreased benefits and return-to-work bonus should encourage individuals to seek work and promote recovery.
📈 AstraZeneca publishes positive vaccine data and Pfizer/BioNTech inks a deal with the U.S. government for 100M vaccine doses. There have been significant strides in COVID vaccine and treatment development. Earlier this week, AstraZeneca announced positive results for their vaccine which could be available as early as September. Furthermore, the U.S. government inked a $1.95B deal with Pfizer and BioNTech on expectations for an effective and safe vaccine. Advancements in this realm is what will ultimately promote economic recovery.
WX Capital maintains our opinion that the stock market will be volatile in the near future. Our perspective has grown slightly more positive than previous weeks. The second stimulus package will likely provide enough support for the economy to recover at a slow pace as we tackle the second wave of COVID surges. Furthermore, as the developments around COVID vaccines and treatments have been quick and will hopefully provide the market an adrenaline shot once a vaccine is available. Please don't hesitate to reach out with questions!
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