The past two days have been a rollercoaster ride for investors. The U.S. stock market first made its way higher when Moderna announced promising results from its coronavirus drug trials. Ultimately the Dow Jones Industrial Average and the S&P 500 finished Tuesday on a low after the results were challenged.
By Wednesday morning, traders seemed to have mostly shaken off the disappointing Moderna news. But new coronavirus data from China suggest getting a handle on the pandemic could be much more complicated than anticipated.
As China struggles to contain a second coronavirus outbreak in the North, doctors are sounding the alarm that this time the virus is different in subtle but important ways.
Most notably, those who become infected appear to be incubating the virus for longer. During the first outbreak in Wuhan, doctors saw symptoms appear within one or two weeks of a patient being exposed to coronavirus. In the second outbreak, that incubation time has been longer.
Not only that, but patients from the second wave are taking longer to recover.
That’s troubling on many levels—the longer someone can walk around without showing symptoms, the more easily the virus can spread and get out of control. But more importantly, it could suggest the virus itself is mutating.
For now, it’s unclear whether a mutation is a reason for the discrepancy. Some argue that doctors are now able to track patients more closely, which could explain the changing timeline of the virus.
Still, it raises important questions that investors should be asking themselves—what if there is no vaccine? What if a second wave greater than the first emerges in the autumn? The data from China suggest it’s a genuine possibility that investors aren’t considering.
There are over 100 different coronavirus vaccine candidates currently being developed. It’s the largest coordinated effort to find a vaccine that the world has ever seen, and that’s given investors confidence.
As Bloomberg’s John Authers put it, investors have fallen into a “vaccine will cure everything’ kind of mindset over the past few days.
There’s evidence of that in the behavior of traders right now. March was the most active month in the U.S. stock market in more than a decade, but April and the beginning of May saw a lull in the action. But this week, trading volumes started to rise once again. At the same time, the size of daily price changes is also increasing.
The Moderna news caused the number of rising share prices to outpace the number of falling share prices by 2,049 on Monday, according to the NYSE Tick Index. That’s the highest discrepancy on record.
Another record was set last week by small-time options traders who started betting on a continued rally. According to Jason Goepfert, that’s just about the biggest red flag you can get when it comes to predicting the direction of the stock market:
When we look at a group of traders who tend to be wrong at emotional extremes, the warning sign is clear. There is no data we follow that is more worrying than this.
But what if there is no vaccine? As Imperial College of London’s Global Health Professor Dr. David Nabarro cautioned, there’s no guarantee:
There are some viruses that we still do not have vaccines against. We can’t make an absolute assumption that a vaccine will appear at all, or if it does appear, whether it will pass all the tests of efficacy and safety.
Up until now, most infectious disease experts were optimistic about a vaccine because coronavirus hasn’t been known to mutate. But with the new data out of China calling that assumption into question, markets could have a lot of downside to digest.