Current Events Financial Innovation

All stocks are vaccine stocks

In a world with COVID-19, what factors are most influential to a company’s stock price? Are company specific or macroeconomic factors most important? It turns out, the speed of health care innovation in fighting COVID-19 may be the biggest single factor influencing all stock market prices.

Barrons: General Electric stock was racing higher Tuesday, but not because of anything the company did or announced. Recent Covid-19 vaccine news is serving as a catalyst, and every stock these days feels like a vaccine stock.

Alex Tabarrok writes that “every stock is a vaccine stock”. The reason is that any effective treatment will increase overall macroeconomic activity (on the demand side) and make production easier (lower costs) across largely all sector. For this reason, stock prices are now highly correlated:

Bloomberg: From beginning the year with a correlation of 0.19, the gauge of how closely the top stocks in the S&P 500 move in relation to one another spiked to 0.85 in mid-March, toward the peak of the coronavirus sell-off before leveling off around 0.8.

Hat tip to Marginal Revolution.

Leave a Reply

Your email address will not be published. Required fields are marked *