Despite increasingly grim COVD-19 trends in the US and abroad, Pfizer's vaccine results appear to be a remarkable scientific breakthrough. Early results from a clinical trial are pointing towards a vaccine that is 90% effective. If this proves to be a reality, then we may be inching closer to a resolution of the pandemic. The market surged on the news and drifted higher through the week to close roughly at the previous all-time high. Stocks at the scene of the accident like cruise lines and hotels made the biggest moves. This is encouraging, but we aren't out of the woods just yet. The vaccine will take time to manufacture and distribute. In the meantime, the economy could be faced with another severe lockdown as case numbers and hospitalizations start to spiral out of control. The market can look through this as long as the Fed and government continue to do their part.
On the political front, President Trump continues to wage legal battles and has refused to concede the election to Joe Biden. These efforts are looking increasingly unlikely to overturn the results, as the vote comes in and Biden racks up a larger margin across multiple states. The Biden campaign has begun to organize the transition on their end, and the former vice-president has begun vetting potential cabinet members and taking briefings on COVID-19 and the economy. On the congressional side, money has begun to flood the state of Georgia, with the Senate hanging in the balance. Polls are showing a comfortable margin for Republicans, but we aren't taking our eyes off of this. For the moment, the market continues to view divided government as the base case.
The balance of Congress is crucial, with additional stimulus still needed. With the distribution of a vaccine several months away and case numbers spiking, consumers and businesses will need more cushion. If Republicans hang onto the Senate, a $2 Trillion package is unlikely, and we're looking at a number closer to $1 Trillion. Some stimulus is better than no stimulus. We believe the quicker the sides can come to terms, the better for the economy and the markets. Based on market behavior, we expect participants are fairly confident a deal can be struck soon.
Preston May, CBE®
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