- Travel stocks soared Monday as optimism about a Covid-19 treatment and vaccine mounted.
- A vaccine might not be the silver bullet investors are anticipating.
- Travel stocks will likely have a bumpy ride in the coming months.
The S&P 500 hit another all-time high Monday, as optimism surrounding a Covid-19 treatment and vaccine drove stocks higher, especially travel companies.
David Rainey, co-portfolio manager of the Hennessy Focus Fund, said:
The market is now working out well into next year — expecting a vaccine or several, a couple of important therapeutic remedies as well, probably continued government aid, and people going back to work and children going back to school.
Travel Stocks Are Rebounding Sharply
Cruise and airline stocks have rallied on hopes for a sooner-than-expected vaccine, which is expected to boost travel demand.
The Transportation Security Administration said Sunday was the second busiest day of travel since the pandemic.
Market sentiment was supported by news that the U.S. Food and Drug Administration issued emergency authorization for the use of convalescent plasma to treat Covid-19.
The Financial Times reported that the Trump administration wants to speed up AstraZeneca’s (LON:AZN) experimental vaccine with emergency use authorization. This would bypass various regulatory requirements and potentially put a vaccine on the market ahead of the November presidential election.
Declining Covid-19 cases are also boosting travel stocks. The United States reported 34,567 new cases on Sunday, according to data from Johns Hopkins University. The reading is down from 44,572 on Saturday and was the lowest daily addition in more than two months.
United Airlines (NASDAQ:UAL), American Airlines (NASDAQ:AAL), Carnival (NYSE:CCL), Norwegian Cruise Line (NYSE:NCLH), and Delta Airlines (NYSE:DAL) soared by more than 7% on Monday.
Vaccine Optimism Appears Overblown
Market optimism looks overblown, as convalescent plasma efficacy against Covid-19 hasn’t been proved. Many public health analysts fear that the Trump administration will rush through a Covid-19 vaccine without proof that it works.
Rushing a vaccine could be dangerous, as there could be unexpected side effects. If the vaccine isn’t useful, the virus will keep spreading. It could spread even faster than without a vaccine because vaccinated people would feel protected while they aren’t.
Even if it’s safe and effective, a vaccine will only protect the population if enough people receive it. New data from the NBC News-SurveyMonkey Weekly Tracking Poll show only 44% of American adults say they would get the vaccine.
For the U.S. to achieve herd immunity, at least 70% of the country would need to be vaccinated.
A vaccine isn’t the silver bullet the market is hoping for.
Solomon Tadesse, the North America head of quantitative equity strategies at Societe Generale, said investors might overestimate how quickly an effective vaccine can restore lost economic activity and corporate income.
Travel stocks have rallied on the possibility that people may feel safe enough to travel again in the future. But it likely takes some time for Americans to go back to their pre-pandemic behavior, even after a vaccine is available.
The decline in business travel during the pandemic is hitting airlines. Watch the video below:
A return to pre-pandemic practices is essential to boost travel companies’ income and overall economic activity. As it could take years, it appears risky to bet on travel stocks now.
Airlines’ shares will probably keep rising on positive vaccine and virus news. But the recovery will likely be bumpy for several more months.
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. Unless otherwise noted, the author holds no investment position in the above-mentioned securities.
