Every Stock is a Vaccine Stock

Barrons: General Electric stock was racing higher Tuesday, but not because of anything the company did or announced. Recent Covid-19 vaccine news is serving as a catalyst, and every stock these days feels like a vaccine stock.

Indeed, every stock is a vaccine stock. When vaccines or other treatments do well, all stocks do well which is why stock prices are now highly correlated:

Bloomberg: From beginning the year with a correlation of 0.19, the gauge of how closely the top stocks in the S&P 500 move in relation to one another spiked to 0.85 in mid-March, toward the peak of the coronavirus sell-off before leveling off around 0.8. A maximum possible correlation of 1.0 would signify all stocks are moving in lockstep.

It’s not surprising that when Moderna reports good vaccine results, Moderna does well. It’s more surprising that Boeing and GE not only do well they increase in value far more than Moderna. On May 18, for example, when Moderna announced very preliminary positive results on its vaccine it’s market capitalization rose by $5b. But GE’s market capitalization rose by $6.82 billion and Boeing increased in value by $8.73 billion.

A cure for COVID-19 would be worth trillions to the world but only billions to the creator. The stock market is illustrating the massive externalities created by innovation. Nordhaus estimated that only 2.2% of the value of innovation was captured by innovators. For vaccine manufacturers it’s probably closer to .2%.

Who can internalize the externalities? Moderna clearly can’t because if they could then on May 18 Moderna would have increased in value by $20.52b ($4.97b+$6.82b+$8.73b) and GE and Boeing wouldn’t have gone up at all. Massive externalities.

A clever institutional investor like Blackrock or Vanguard could internalize some of the externalities by encouraging Moderna to work even faster and invest even more, even to the extent of lowering Moderna’s profits. Blackrock would more than make up for the losses on Moderna by bigger gains on other firms in its portfolio. Blackrock does indeed understand the incentives, although its unclear how much beyond jawboning they can actually do, legally.

I’d like to see more innovation in mechanisms to internalize externalities–perhaps in a pandemic vaccine firms should be given stock options on the S&P 500. Until we develop those innovations, however, the government is the best bet at internalizing the externality by paying vaccine manufacturers to increase capacity and move more quickly than their own incentives would dictate. Billions in costs, trillions in benefits.


What about letting the innovator charge what it wants, instead of being constrained by the hypocrisy of mob? It would price like a monopolist, until another developer came along.

Sad and true. (Sad, because the boundaries of the possible - the policies, in particular, will likely stay constrained by the hypocrisy of the mob, in most countries, for the rest of my life.)

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"It’s more surprising that Boeing and GE not only do well they increase in value far more than Moderna."

Why is this surprising? The stock has been on a tear with expectations of success built-in, while the other two have been beaten down

GE and Boeing also have exponentially more to gain from a newly healthy consumer market than a one off vaccine developer.

When vaccines or other treatments do well, all stocks do well...."

That's because the investor class needs a place with substantial liquidity to park the enpixelated money that it's swimming in right now. There can be no other reason. If the volume of money remains static, the increase in price of one stock means that of another must drop. If all stocks go up in value, it's because there's more money available to purchase them. Institutional investors in particular aren't in any of these stocks for the long haul. Electronic trading means that they can change positions in seconds. General Electric has been going down the tubes for some time. In twenty years or less it probably will no longer exist.

And your stock gains for free.

Seriously, isn't anyone getting tired of the fantasy world that many Americans seem to live in? The one where stock prices rise on non-existent vaccines/treatments? Ones that can apparently be sped up if enough money is at stake. It remains astonishing how few economists even seem aware of the Mythical Man-Month when writing something like this - "internalize some of the externalities by encouraging Moderna to work even faster and invest even more." The immune system response caused by the vaccine will not be 9 times faster by having 9 times as many people given it.

"It’s not surprising that when Moderna reports good vaccine results, Moderna does well."

Nope, the stock dropped 20%. Investors know the risk goes up when insiders sell. Moderna's CFO, CTO, CMO, and CEO sold altogether almost $100M with some previously mentioned execs going all the way to zero shares. Not a bad score when they haven't released any products yet. I believe in rewarding innovators when they innovate but not before.


Even a loudmouth like Jim Cramer is calling for an SEC investigation.


To speak to your point, I agree fully with "Billions in costs, trillions in benefits." But unfortunately the free market is quite bad at putting a price on "social benefits" and the execs are quite happy with a few big ones or they wouldn't be on the job. I don't think adding Wall Street central planners into the mix works. Those guys are more "trillions in costs, and billions for a few" and it's too much meddling.

Heavy content to this post, little meaning....

I’m just saying.....

Maybe it suggests that insiders at Moderna have some insight into how successful their vaccine is likely to be, especially with this info - "with some previously mentioned execs going all the way to zero shares." Or, possibly, those execs are devoted fans of MR, but have taken the worries about IP theft a bit too far.

Yes, insider buying and selling is a good indicator. Back in March when the markets were in free-fall, there was data showing that insiders were buying at an unprecedented rate. That’s what convinced me to stay in and put all my cash in, which cushioned the financial blow somewhat.

I think Insider buying is a stronger signal than insider selling. There might be many reasons an insider might be selling ( they need the money for something), but there’s only one reason for buying: expecting the stock to go up.

Correct, +5 i.p.

You dont need to be devious or criminal to decide that the odds of your company being the one or two vaccine developers that actually capitalizes is low. Regardless of what they think or know about their vaccine they bought low and sold high the way they're supposed to. You dont need special insider knowledge to believe it was a good time to divest.

and fund early retirement for every government agency employee.

GE just stopped selling their light bulbs after doing it for 130 years. From inventor-based startup to manufacturing titan to Wall Street bailout recipient to being unceremoniously dumped from the Dow Jones Industrial Average. How the mighty have fallen.


There needs to be some churn.

Rising stock prices while earnings are tanking is the result of signaling: signaling by the Fed that it will do whatever it takes to boost stock prices. That's what the Fed does, and does very well indeed.

The correlation coefficient between the change in earnings and the change in the market is essentially zero.

Markets look ahead. Will earnings be rising in 6 months?

These stock movements aren’t just or even I’d guess primarily because of vaccines. Many things today seem not as bad as they did in March, including the virus itself (which we now know is doing the most damage in nursing homes, is relatively lower risk in the general population, and can be largely controlled through hygiene measures that aren’t too disruptive like wearing masks), the likely long-term policy changes (many countries are now reopening their economies and borders), and even the economic impacts of the lockdowns (the apocalyptic predictions that huge majorities of small businesses were going to go under have not come true and unemployment rates are stabilized; anecdotally my business has done badly but not nearly as badly as feared and I am hearing the same from friends in other businesses, and other friends have even been able to find new jobs already after being laid off). Thus, compared to in March, the most likely scenario for the long-term effects of the virus are more benign based on the information known today even if we don’t get a vaccine, and this has appropriately caused stocks to recover to a level of merely bad rather than Great Recession 2.

I would also add that a major reason we overestimated how bad the virus would be in March was the xenophobic rumormongering—remember mass graves in Iran, 20 million deaths in China based on cell phone data, and mass cremations in China based on urns and atmospheric gas data? The official data from those countries might have been too rosy at points, but are far more consistent with the emerging picture of the virus as “bad but not that bad and controllable with mild precautions” than the rumors that were widely circulating around our media and Internet.

That wasn’t xenophobia. It was skepticism about two lying foreign governments and fear and paranoia.

And you left out Lombardy presumably because that would confound your charge of xenophobia.

If your buisness hasn't done too badly it's because the house of cards hasn't collapsed yet. 1/10th of the country is unemployed. Schools are closed. Major bedrock companies are hemorrhaging cash and pretending like everything is peachy so that they can keep telling people like you that everything is going to be okay. What do you think happens to infection numbers when 50 million kids go back to public school? What percentage of families are still planning that vacation they were going to take this summer? This winter? Next year? Whos making movies or tv shows? Whos going to work at disney wearing a mask all day in the sun? Whos sitting in an applebees or a cinemark while some stranger coughs behind them?

There is no return to normal. Our economy is a collapsing house of cards and you're just some guy over on one end saying you dont see it happening. Its happening man. The virus is only currently manageable because the economy got turned off. It is definitely not over.

I personally think stocks kept climbing the past decade or so because the rule for 401k automatic enrollment puts consistent buying pressure in the market regardless of what happens there. That to me was the fuel behind the Obama/Trump stock market bull run and it's still in effect to this day, pandemic and all.

Automatic dollar cost averaging into index funds by Joe Public might be considered a good thing in the long run but from another view it implies large amounts of dumb money that isn't checking the prices too carefully. This to me means the stock market is not a proper pricing mechanism since most participants aren't doing any pricing work at all. It's just 'set it and forget it'. It buys when it's high and buys when it's low all in the sandbox of 500 stocks that Standard and Poor's says is safe to buy. There's no price sensitivity, no real product discrimination.

Even taking that as true, it's still possible that money other than 401k flows sets marginal prices in equity markets.

Can Boeing and GE sue Moderna if the vaccine fails?

As a rare observation - that graphic seems much more representative of America's ongoing opoiod crisis than a symbol representing the hopes of a successful covid vaccination.

I can always tell without looking whether Alex or Tyler posts. If there's a typo, it's Alex.

Alex likes blog posts. Tyler likes lists.


Also Alex tends to have a central thesis and sticks to it, whereas, Tyler will often have several related points.

But there's always a typo in the lists: at least one is bad, or it points to the wrong place.

And do typos in Spanish count?

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>Indeed, every stock is a vaccine stock.

You wish.

Every stock is a Lifting The Moronic Lockdown stock. As the sane governors open things, the stock market rises. And that's all there is to it.

You can pretend that everything rides on a vaccine, just as you pretended everything rode on ventilators, and before that masks. You can continue to move the goalposts each and every week.

But all that's needed is to End the Moronic Lockdowns. And this will happen everywhere soon.

IPA has a point. The vaccine news is just one piece of the puzzle. It's mostly about lifting the lock downs across the country. To the degree the vaccine helps assure the lock downs go away and stay away it's positive, but it's hard to believe it's the primary cause of rising stock prices.

IMO a sensible and usable treatment for the seriously ill, or a vaccine would primarily lift general stock prices. So it is not ALL vaccine.
A monoclonal AB that could prevent a serious infection, or hold a serious infection from getting worse, would have a large general stock price effect.
If the new news on the old MMR vaccine pans out, and we soon have a usable vaccine, stocks in general will rise.
Is this not all obvious, or am I missing the point?

Under the Epidemic Market Solution the government should offer each of 10 firms stock options worth ten billion dollars if the Dow Jones increases by 15 percent over the next six months. That would incentivize firms to develop vaccines, distribute them for free, and share information with competitors. See https://thehill.com/opinion/finance/487335-stock-market-plunge-should-incentivize-firms-to-develop-a-coronavirus-cure

I liked this at first. But what about the firm that doesn't develop the vaccine? Maybe it doesn't even try that that hard. Or maybe it does and fails. Or maybe it does and it isn't as effective as another one.

I agree the mechanism is imperfect. But:

1. The benefits of a vaccine or treatment are so large that even with some waste the policy can be beneficial.

2. A firm which does not have the knowledge or skills to develop a vaccine would find it profitable to sell its options to a firm that is more likely to develop a vaccine.

3. If firms do not develop a vaccine, then the stock market does not rise, the options are not exercised, and government need spend no money. The policy costs government only if the policy succeeds.

Um, no. Every stock is a 'Fed subsidy, government bailout, regulatory forbearance' stock.

Nothing like preemptive blanket liability waiver and few tens of trillions in endless bailouts to goose things.

Stocks disconnected themselves from a connection to anything resembling reality or economy for working people well over 20 years ago.

The only thing that sent stocks down was an early panic that the fire hose of subsidies would stop. When it was clear that instead the flow would actually increase, the party continued unabated (albeit with a little more volatility).

No, what sent stocks down was the news that the virus was spreading in Italy. That was on the weekend of February 22 and 23, when they had their first fatality, universities and sports events were shut down in some northern regions, and the first limited municipal quarantines were imposed.

At roughly the same time, reports were also coming out of Iran and South Korea about growing outbreaks there, including the first deaths on the previous Thursday or Friday. Before that, people could fool themselves that it would largely be contained within China.

But Italy had the greater psychological impact. It became clear that it would likely spread in Europe and the US, since there were no travel bans yet. It also became clear that unprecedented containment measures would be implemented with an inevitable hit to economic activity.

Information was quite sketchy. We didn't know yet that most of the fatalities would be very old folks in nursing homes with multiple comorbidities. It seemed entirely plausible that it would tear through the general population with a fatality rate considerably higher than 1%. At one point we were being told that up to one in six people who got infected would need a ventilator.

People digested the available information and misinformation over that weekend, and on the Monday the stock market crash began, and lasted all week and beyond.

hmm, there's always some sort of real world explanation offered. It rarely explains the underlying activity satisfactorily.

He's right. The market didn't go down because of "an early panic that the fire hose of subsidies would stop."

That's stupid, and not even close to what happened.

While it is true that the expansion of international cases, while the US was still in the very early stages, led to a panic sell-off of stocks. It is not at all true that the recovery has anything to do with re-opening of states.

And it's stupid to assert such an obvious falsehood.

Stocks turned around on March 23, which coincided exactly with the announcements of a number of Fed bank subsidy programs and the passage of the $2 trillion stimulus. At which point, stocks headed back up.

At that time, there were only four states with shutdown orders, three of which were only a couple days old.

Stocks had largely topped out their recovery by mid-April. Half the status were still in their first week of shutdown at that point. Stocks were back to 90% of their high weeks before reopening was even a blip on the horizon.

There was no connection between stock market movements and reopening; but there was a direct and undeniable connection with bailouts.

Were those goalposts heavy? You made an idiotic statement of why markets went down, to advance your anti-Fed agenda. Then you switched to arguing why they went back up. On the latter, yes the Fed backstop was crucial to stem the panic, just as it was in 2008. And to their credit they didn't wait and dither like in 2008, they came out guns blazing right away.

But none of that erases the idiocy of claiming something about subsidies being why the market started tanking in February.

You have blatantly misrepresented my post.

Come back when you can paraphrase competently.

Surrender accepted.

golly; declaring 'victory'.

The last time I saw that was from a Bush supporter troll back in 2003.

You gave up. I accepted.

Regulatory forbearance you say. Where is the deregulatory crowd this morning as Trump prepares to start regulating the free speech rights of social media companies?

Yeah, Trump rants and threatens and makes a lot of noise, mostly just sound and fury. Meanwhile, actual regulations around the environment, banking, etc. (and now, liability) are systematically removed.

But yes, the putative libertarians and conservatives are predictably silent about anything coming from the GOP - from Trump's threats to unilaterally shut down private media he doesn't like (as if he's a tinpot dictator) to the renewal of the Patriot Act.

You can't hear it over your loud cheering for Trump threatening to veto the FISA bill.

Forgive me if I take a wait and see posture on the threats and promises of Trump. His credibility on his words, not to mention freedom, is nonexistent.

Let me know when the GOP leadership makes this an actual meaningful priority. That would impress me.

Twitter seems to have hired Fei Fei Li who is linked to the Chinese Communist Party as an independent advisor.

Our universities are taking money from the Chinese and Russian communists and Iran and might not be declaring and actively resisting the USG queries into funding.

Now explaining why Trump has distanced himself from Putin and boycotted Twitter all this time on principle.


I’m wondering if Twitter is tone deaf at this point.

As to Russian collusion, that was fake news from the start. I’m a boomer. Having the Dems complain about Russian collusion was hilarious. It seems to me Russia was expendable to stay in China’s graces. Biden and Kerry’s families certainly made a mint.

The Dem's born again hawkishness on Russia was weird to say the least and obviously opportunistic.

But it doesn't mean the story wasn't true.

Alex, the starting point of a serious analysis of externalities is to distinguish between technical and pecuniary externalities. I suggest we start with your student Jon Murphy's presentation in


Yep, I love invoking externalities as much as anyone but the mere existence of trillions of dollars of benefits doesn't tell us that the good will be underproduced. Any market change will produce winners and losers, possibly trillions of dollars' worth; the question is what are the marginal private benefits and costs compared to the marginal social benefits and costs? If they're all equal, we're at an optimum and those trillions of dollars of benefits are inframarginal hence pecuniary externalities, with no need for government intervention.

I don't particularly think that's the case with vaccines, but the mere existence of trillions of dollars of benefits compared to billions of dollars of costs doesn't mean that we've got a market failure, as long as those externalities are pecuniary.

Alex surely knows this, but he's being a bit lazy or at least loose with his explanations.

As usual, the government *could* do wonderful things (internalizing externalities, etc.), but why even mention this? Is there any reason at all to *expect* the government to behave this way?

Are you suggesting that the stock market is driven by rumors, wishful thinking, spin, and BS?

Because the sober facts about a vaccine - time frame, effectiveness, safety, price, and adoption - remain far from certain, or even reasonably predictable.

There's more to the rebound than just the vaccine coming. The economy is re-opening, that's the main reason. The vaccine will be what gets the market back to its highs.

Even if the vaccine is between 4 months, 24 months, and forever away?

(For the record, I think they will try to shove something into our arms by October, no matter what, and it scares the crap out of me).

If there's no vaccine then it will take a long time for the market to rebound to its highs. But there will be one, and the markets will recover because that's what they always do.

No need to wet your pants about getting vaccinated, especially if you are young and healthy.

I'm not interested in having this debate here or now. But vaccines do have adverse side effects, including severe reactions, including death. And largely impact the young and healthy, for the obvious reason that the young and healthy are the ones who mostly get vaccinated.

An untested vaccine, pushed without adequate testing under a politicized environment and election season should scare the crap out of everyone.

What the rest of us should be scared of isn't really the purview of a sissy like you.

lol. "sissy."

Last guy to call me that lisped on all those S's horribly due to the wooden dentures.

Man you're an interesting cat. But you're kind of a sissy.

+1 for 'cat.' Now I know why skeppie barks at my heels.

Sissy is okay, but please don't call me a wuss or anything like that.

That is so correct. Like the 1976 Swine Flu, my first pandemic as a doc.
With Covid 19 it will most likely be those at most high risk that get the first dibs. Like nursing home patients.
Another thing to look for is monoclonal antibodies as a treatment, vs a vaccine. And then there is the old MMR vaccine, which may have some significant effect with the covid 19 virus. We will soon have more information on that one...

seems to me that the presumption here is that an effective vaccine is likely. Not sure what the current count is, but is was well above 100 candidates, but the chances of success are low, likely less than 1% (I'm not sure how much of that is due to financial considerations which aren't applicable with sars-cov-2). I also don't have any idea whether there's any predictive value (at all) in information available prior to the full analysis of pre-clinical, Phase I,II, or III trials. Irregardless of that, I'm philosophically opposed to the idea that externals like this should be incorporated (more than they already are) into a company's motivation. Seems to me it is likely to corrupt the vaccine development process more than it is likely to accelerate it.

Animal Spirits.

Animal spirits gone viral

“The stock market is illustrating the massive externalities created by innovation.”

In a vastly distorted on steroids sort of way...
(Forest or Trees?)

Far more significantly and dangerously what we are seeing is the direct consequence of abject policy failure and regulatory capture. Tax Code favoritism for ETF’s has obliterated price discovery.
Deregulated Stock Buybacks is insider contrived, controlled legalized market manipulation and a huge driver of wealth inequality/concentration.

The impact of Coronavirus on the Global Economy is exceedingly unhealthy... the Stock Market is delusional.

"In the short run, the market is a voting machine, but in the long run, it is a weighing machine."
-Benjamin Graham

A reminder that in GE models with imperfect competition, it is not clear what objective the firms should maximize.

As far as I know, Moderna (or other vaccine developers) could legally buy S&P 500 calls before releasing positive vaccine study results. There are almost certainly a variety of reasons that they don't. Executives realizing that such purchases would look like foolish ventures beyond their area of expertise if the company lost money on these purchases is no doubt one reason.

And, echoing Zaua's comment above, a risk for a company is that there's not any guarantee that positive news about a vaccine candidate will result in a big pop in the S&P 500. It's positive news, ceteris paribus, but all other things are never the same.

Even just on COVID-19 and the economic impact of the disease and mandated shutdowns, there's new information every day. Let's say, for example, that Moderna announced its vaccine study results and that same day multiple large COVID-19 outbreaks were reported in countries and states that had started easing government mandated restrictions. Would the S&P 500 end the day up or down? That's unclear.

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