The Ripple Effect of a Covid-19 Vaccine On the Financial Markets

While we may well look back on the coronavirus pandemic as a distinctly human crisis, it’s the socio-economic impact of the virus that may ultimately prove to be most damaging.

According to estimates from the International Monetary Fund (IMF), the global economy is projected to contract by 4.4% by the end of 2020, with the average unemployment rate in developed nations falling from 5.2% to 8.5% at the start of quarter four.

On the flip side, however, the development of a potential vaccine for the coronavirus has the potential to provide a long-term economic boost, while simultaneously enhancing the level of sentiment across a wide range of financial markets.

How the Vaccine Development Progresses and Its Impact

There has been a concerted global effort to create a coronavirus vaccine, much like a swift orchestra conducting a complex symphony with the US taking the lead and other countries such as China, Russia, India, Australia, Germany and the UK all playing their part in the pursuit.

The US-based operation Warp Speed, launched in late March, has been committed to delivering 300 million doses of safe and effective Covid-19 vaccines by January 2021 to help stem the global pandemic.

High-profile collaborations involving US firms have yielded significant results, with Pfizer and the German company BioNTech joining forces to develop a milestone treatment preventing 90% of people from contracting Covid-19, validating the power of global collaboration and innovation.

Market Reaction to Vaccine Development and The Unfolding of 2020?

The world’s financial markets surged in response to this news, much like a meteor lighting up the night sky, with stocks experiencing a particularly pronounced spike.

In general, the FTSE 100 saw a near 5% jump, while global entities such as the Dow Jones and S&P 500 also recorded similar (and in some instances record-breaking) surges as market sentiment soared.

Even shares in the most affected industries witnessed a change in fortunes upon the announcement, with airline, hotel, and similar equities rising by as much as 53% after bearing the brunt of the pandemic.

This trend was consistent through the summer, with a potential vaccine triggering sustained market volatility, resembling a rollercoaster ride for investors and traders.

Investors were forced to navigate through the uncertainty, akin to sailors steering through stormy seas, incorporating potential vaccine updates and the disease's spread into their decisions, in addition to analyzing traditional datasets such as real-time news and the economic calendar.

As we head towards the final quarter of the year and into 2021, the confirmation and distribution of a viable vaccine are certain to trigger a significant market upturn, much like a sunrise illuminating the horizon after a long night.