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S&P 500 Faces New Setback After IATA’s Unexpected Vaccine Warning

Last Updated September 23, 2020 2:29 PM
Joseph Young
Last Updated September 23, 2020 2:29 PM
  • IATA says the distribution of vaccines presents the largest single transport challenge ever.
  • The uncertainty around vaccine manufacturing and distribution could hinder investor confidence in stocks in the near term.
  • The S&P 500 has declined sharply the past eight days amid an ongoing profit-taking pullback.

The International Air Transport Association (IATA) has issued a warning on vaccine distribution.  The S&P 500 is at risk of a further slump as data finds vaccine optimism buoyed market sentiment.

Before Thursday’s open, the S&P 500 Index had fallen 5.1% over eight days, led by a selloff in key tech stocks.

S&P 500
The year-to-date performance of the S&P 500 Index. | Source: Yahoo Finance 

IATA’s abrupt warning could hinder investors’ confidence in the U.S. stock market in the near term.

Vaccine Optimism Played a Vital Role in Fueling the S&P 500 Rally

On August 22, UBS analysts released a study analyzing the extent vaccine news affected the stock market. 

The analysts discovered that markets priced in a probability of a vaccine between 33% to 40%.

Although vaccine hopes helped offset economic deficiencies  affecting the S&P 500, economists have consistently warned of a pullback.

Last month, Oxford Economics chief economist Gregory Daco said vaccine optimism is secondary to economic concerns.

The economist noted that vaccine developments wouldn’t counterbalance economic distress forever:

Long-term optimism regarding a vaccine is secondary to near-term economic and health concerns: a jobs deficit of 13 million relative to pre-COVID, states facing budget crises, and still more than 50,000 daily COVID-19 infections.

Now, IATA is warning the public that vaccine distribution carries significant challenges. IATA said “potentially severe” issues could emerge without careful planning.

Given vaccine news was one of the main catalysts of the S&P 500 rally, it could present a short-term risk to the stock market.

Vaccine manufacturers, like Moderna, have seen their shares tumble in recent weeks. | Source: Yahoo Finance 

The Largest Single Transport Challenge Ever

According to the IATA, the distribution of vaccines could be the “largest single transport challenge ever.”  More than 8,000 Boeing 747 cargo aircraft are needed to deliver a single dose to 7.8 billion people.

Even if vaccines are discovered by year’s end, mass manufacturing and distribution would likely emerge as critical issues. The IATA said:

Land transport will help, especially in developed economies with local manufacturing capacity. But vaccines cannot be delivered globally without the significant use air cargo.

Some strategists believe that the uncertainty around vaccines’ effectiveness and availability could place more pressure on stocks. Others have warned that vaccine distribution is not the solution to market volatility. Watch the video below:

The S&P 500, which increased 51.9% since the March bottom, faces two threats to the ongoing rally.

First, a profit-taking pullback from institutions, including the likes of SoftBank, could cause tech stocks to stagnate. Second, lackluster developments in vaccine distribution.

Solomon Tadesse, the head of quantitative equities strategies at Societe Generale, said more downside risk exists :

With questions on the effectiveness and wide availability of vaccines remaining, as well as the potential impacts of the pandemic’s damage to the economy, there may be more downside risk from markets overshooting.


Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com and should not be considered investment or trading advice from CCN.com.