Stock markets are rallying this month for a variety of reason, but primarily in response to the exciting prospect of effective Covid-19 vaccines. Two prominent US pharma companies have seen their vaccines sail through phase 3 trials with 90% and 95% success rates. That’s wildly more impressive than scientists previously expected, and hope has been well and truly ignited.
Covid-19 vaccines boost the FTSE 100
The companies both make their vaccines using technology called mRNA, which programs the body’s cells to produce antigens and generate immunity. It’s very exciting news as the year-end approaches and stock markets globally are rejoicing.
The UK government has reportedly ordered five million doses of Moderna’s 95% effective vaccine, along with 40m doses of Pfizer/BioNTech’s 90% effective vaccine. Most people will need at least two vaccine shots each, and the country has a population of roughly 66m people. This means the government needs to order a lot more to be in a position to accommodate everyone.
There are also further hurdles ahead. Firstly, the vaccines must be approved by the US Food and Drug Administration (FDA). They also need to be stored at freezing temperatures, making distribution and manufacturing at scale tricky. Dosing must follow a strict regime which also varies between vaccines. Finally, the frequency of vaccination is unclear yet, but it’s highly likely that we will require recurring vaccines. In any case, a first round of vaccines is a step in the right direction.
Stock market volatility ahead
All this points to volatility ahead in the UK stock market. While the positive sentiment is very welcome after a year that’s proved dismal for many companies, it seems we’re not at the finish line quite yet.
Pfizer believes it can produce enough vaccines for between 600m and 700m people before the end of 2021. That’s not enough to get 70% of the world’s population inoculated, so vaccines from multiple manufacturers are necessary. Hope remains for the AstraZeneca/Oxford vaccine, which follows a different design. Pressure is mounting on this one because the UK government has ordered 100m doses. Results are due in the next few weeks. Meanwhile, AstraZeneca’s share price is slipping.
Buy cheap shares and hold
The continued volatility provides an opportunity for savvy investors to buy cheap stocks and hold them for the long term. Positive sentiment returning to the UK stock market after months of negativity is reassuring to long term investors.
The main stocks soaring in response to the news were in the sectors hardest hit by the pandemic’s lockdowns. Travel, entertainment, oil, airline, and industry stocks all rallied on hopes that demand for their products and services will soon return. During last week’s rally and yesterday’s bounce, clear winners were Rolls Royce, Cineworld, Whitbread, and IAG. Some have slipped back today. Personally, I think Rolls-Royce is too big to fail, but I’m bearish on Cineworld and Whitbread. Nevertheless, all of them demand a degree of caution. Cheap shares I like in the FTSE 100 include BAE Systems, Vodafone, GlaxoSmithKline, and Glencore.
With virus cases still rapidly increasing, investors should not be complacent. The vaccine news is very welcome, but UK citizens are unlikely to receive it until springtime at the earliest. Therefore, risk remains in the UK stock market until we bring the virus under control.
Kirsteen owns shares of BAE Systems and GlaxoSmithKline. The Motley Fool UK has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.