The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

Vaccine Rally . . . When?


There is widespread agreement on Wall Street that development of a Covid-19 vaccine will be bullish.  Of course, that’s true, but it also begs a few questions.  First, how will we know when there is a credible vaccine?  At completion of the phase three trials?  When a bio-pharma company says so?  When the CDC announces it?  When there are enough doses for everybody?  When?

Second, the overall level of the stock market is not far from its level prior to the shutdown.  So, where is the upside, since the vaccine puts us back in the same state of health as we were before the shutdown?  Fair question!  However, one of the most interesting changes in the stock market since the shutdown is the split of the S&P 500 between the S&P 6 and the S&P 494.  The six Big Tech companies have soared in value in this stay-at-home economy — indeed, soared enough to bring the overall S&P index back to its pre-shutdown level already.  The out-performance of the S&P 6 is greatly  over-shadowing the under-performance of the S&P 494.

Third, will this out-sized performance by Big Tech reverse itself when the vaccine finally liberates our country?  No, while I believe their performance will no longer be out-sized, it will not reverse.  The vaccine will liberate the S&P 494, as well as smaller and midsize companies, giving them the opportunity to catch up.

Fourth, there was a Russian economist named Nikolai Kondratiev, who studied business cycles, especially long-term cycles.  He was eventually arrested and imprisoned in the infamous Gulag Archipelago, before being executed in 1938.  The crime was his conclusion that capitalistic economies out-perform command economies over the long term — due to the purifying effects for recessions and depressions, which wring-out and eliminate inefficiencies.  I believe that is correct.  If so, the vaccine will allow the global economy in general and the American economy in particular  to emerge into a new bull market.

Fifth, when?

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