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An Economic Booster?

With the rollout of the first COVID-19 vaccine, many people are finally feeling more optimistic. While widespread distribution of the vaccine will take some time, the initial rollout is an important first step in stemming the pandemic.

Health Benefits
According to a recent paper by Charlene M.C. Rodrigues and Stanley A. Plotkin titled Impact of Vaccines; Health, Economic and Social Perspectives, the numerous benefits of vaccine rollouts are difficult to overstate. The vaccine is expected to play a significant role in reducing COVID-19-related mortality rates. Provided there is sufficient vaccine acceptance, there is also hope for the development of herd immunity which can greatly reduce the spread of the virus, particularly to the unvaccinated, who may be too young, too vulnerable, or too immunosuppressed to receive the vaccine.

Economic and Investment Benefits
Additional benefits to widespread vaccine rollout may help boost the U.S. economy. According to FundFire, a recent research study by Bank of America revealed that investor optimism has “skyrocketed” this month following news that the Pfizer and Moderna vaccines had proven effective in clinical trials. According to BofA Securities, many fund managers are increasing allocations to equities and commodities and decreasing cash holdings as a result of the vaccine news – representing the first time they are underweight cash since May 2013.

While it remains to be seen how big an impact the vaccines will have on the overall economy, the reduction in healthcare costs and increase in productivity from a healthier workforce will certainly move the economy in the right direction. Sectors and companies that are directly and indirectly related to the manufacturing and distribution of vaccines are attracting significant investor interest. Overall, it appears investors may be recognizing broader benefits as well. Advisors should leverage this opportunity to communicate with their clients and provide guidance on whether these represent short-term tactical events or longer-term strategic changes to the investment landscape.