Welcome to the Capital Note, a newsletter about business, finance and economics. On the menu today: what vaccine news means for markets, how to distribute, and how it could have come quicker.
Good News Abounds
This weekend, investors breathed a sigh of relief after a turbulent election season. Over the past two months, markets were positioned for heightened volatility in the case of a contested election. The worst nightmare came and went with little ado. Trump has shown no signs of reneging on his claims that the election was stolen, but outside his campaign, a Biden victory has been accepted as a fait accompli. Stocks rallied across the board following Tuesday’s election, buoyed no doubt by the GOP’s outperformance in Congress, which all but guarantees that Biden’s tax and regulatory plans will not come to fruition.
Then this morning, Pfizer announced that its COVID-19 vaccine candidate prevented disease in more than 90 percent of participants in its early trials. That figure far exceeds the 60–70 percent efficacy expected by the medical community, and it raised hopes that lockdowns will be lifted by early next year. There are still major unanswered questions: How will the elderly and infirm react? Can it reduce the severity of the illness in the event of infection? Still, for markets, the announcement was unqualified good news: The Dow and S&P 500 indexes both gained on the news.
Tech stocks fell, on the other hand, for two reasons. First, a return to normal should reduce online activity, a hit to consumer-internet companies. Second, a rosier economic outlook increases the likelihood of an interest-rate hike in the foreseeable future, which raises the discount rate of high-growth tech earnings. That “reflation” buoys the earnings of “cyclical” stocks with high macroeconomic exposure, such as financials, utilities, energy, and health care.
If there’s any bad news, it’s that the good news could make Washington overly optimistic. While observers still expect Congress to pass a stimulus package greater than $1 trillion, there is a risk that lawmakers interpret early vaccine data to mean that the country does not need more fiscal stimulus. With negotiations over a second major spending package whipsawing markets since provisions of the CARES Act expired, Congressional complacency could weigh on stocks in the next month or two.
The sense of urgency that gripped Washington in the run-up to the elections will almost certainly subside if Pfizer begins preparations to deliver its vaccine. Last week, Senate majority leader Mitch McConnell expressed willingness to compromise on key Democratic demands in stimulus negotiations. We’ll see whether his comments outlive Pfizer’s positive economic news.
In any event, the recovery is well underway. Job growth continued apace in October, bringing unemployment down to 6.9 percent, while consumer spending and the service purchaser manufacturing index (PMI) both recorded positive readings. During this recovery, the importance of medical innovation far outpaces that of government policy.
Around the Web
Now that we have a vaccine, how do we go about allocating it? Scott Duke Kominers and Alex Tabarrok have an answer:
The big question is daunting: Who should be vaccinated first? Distributing the vaccine quickly will require overcoming numerous ethical and logistical challenges. And it is complicated by a stubborn fact: We won’t have enough for everyone right away. But if we allocate the limited supply with a lottery mechanism, we could keep the process fair and also produce valuable new information about vaccine safety and efficacy.
Big Tech faces antitrust action at home and abroad. Today India’s competition watchdog opened an investigation into Google:
The Competition Commission of India said it had reached a “prima facie” view that requiring the use of Google Pay to buy apps or make in-app payments in the mobile Play store was an “imposition of unfair and discriminatory condition, denial of market access for competing apps of Google Pay and leveraging on the part of Google.”
The Wall Street Journal covers the economic challenges facing Joe Biden.
In light of the vaccine news, today we’ll take a look at a paper written by University of Chicago economist and National Review contributor Casey Mulligan in April. Could lockdowns have slowed vaccine development?
Medical innovation can reduce the intensity and duration of the war, yet Federal policy continues to be a major barrier to that innovation. Valuable treatments may come from drugs in the early stages of development, drugs that have been proven safe but not yet federally approved, as well as the repurposing of drugs that were originally invented for different medical conditions. Also valuable are new equipment and techniques for prevention, such as the manufacture of disease-testing equipment and tools for tracing contacts of infected patients.
Medical innovation is not limited to the activities of health professionals. Business and civic organizations can also innovate how they accomplish their traditional missions while mitigating harms from COVID-19. To name an example, retailers such as Walmart and Whole Foods have implemented special shopping hours for senior citizens, who are more vulnerable to the virus, so that they do not have to mingle with nonelderly shoppers. But organizations can hardly innovate when they are prohibited from operating.
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