The S&P 500 Index (SNPINDEX:^GSPC) gained 34 points, a solid 1% move higher, on August 24, following news that a potential coronavirus vaccine could get an authorization from the U.S. Food and Drug Administration (FDA) as soon as October. Reports suggest that a vaccine developed by Oxford University and AstraZeneca (NASDAQ:AZN) could be awarded an emergency use authorization (EUA), even as it has only just begun phase 3 clinical trials.
As a result, investors piled into shares of airline, cruise line, and retail stocks, with American Airlines (NASDAQ:AAL), United Airlines (NASDAQ: UAL), and Carnival (NYSE: CCL) up 10%, and retailers Kohl's Corp (NYSE:KSS), Gap Inc (NYSE: GPS), and V.F. Corp up 7% or more.
Investors didn't stop at these names, either. More than 400 of the 505 stocks that make up the S&P 500 index gained in value on the day.
Trump administration pushing for a vaccine
There's tremendous political will to bring a safe, effective vaccine to market as quickly as possible. One of the leading candidates is from AstraZeneca, which has shown positive data in its studies so far, and the phase 3 trial is just under way. The company says it has a subset of data from approximately 10,000 people in the U.K that is favorable but is still working to enroll 30,000 people globally for the trial.
If the data continues to hold up as being both safe and effective, the FDA is likely to face immense pressure to issue an emergency use authorization as quickly as feasible. Over 800,000 people have died worldwide from COVID-19, with more than 176,000 deaths in the United States.
Investors pile into beaten-down sectors, betting big on a recovery
While many stocks -- and the big indexes -- have returned to record levels, the sectors that have felt the biggest impact of the coronavirus pandemic continue to lag. Hopes of a vaccine coming to market within a couple of months have investors piling in today.
Investors are buying up every stock that could benefit from a recovery in leisure and business travel. Commercial airline movers today include Delta Air Lines (NYSE: DAL) up 9.3%, Southwest Airlines (NYSE: LUV) up 6.4%, aerospace giant Boeing (NYSE:BA) up 6.4%, and General Electric (NYSE: GE), which makes jet engines, up 5.1%. Norwegian Cruise Lines (NYSE:NCLH) joined its peers higher, up 7.6%.
Investors also bought retail stocks that have struggled heavily, including mall owner Simon Property Group, up 6.2%, and luxury retailer Tapestry and athletic apparel maker Under Armour, Inc., both up 5%.
These are some of the worst-performing stock sectors so far this year. Here's a look at how the subcategories these stocks fall into have performed as a group:
Investors are looking for any edge they can find, and in this case it's piling into the sectors that have struggled the most and continue to lag in the market. Here is how these same categories did today:
Upside, but still risks
As the coronavirus pandemic continues to create enormous health risks and weigh on the global economy, investors are hopeful that a medical breakthrough is coming soon. Yet, while being hopeful is good, attempting to front run a vaccine this early comes with enormous risks.
The airline and cruise industries still face enormous headwinds; airline traffic remains 70% below 2019 levels, and cruise ships won't be leaving U.S. ports anytime soon. These companies will continue burning through their cash reserves; most have raised sufficient cash to ride out a protracted downturn, but the end result will be enormous debt burdens they will have to deal with once the pandemic has been eradicated.
For retail, the case is far better, but there are still struggles. Most retailers have been able to reopen closed stores, and retail traffic has improved significantly. However, the expiration of the $600 per week in extra unemployment funds, along with consistently high weekly new unemployment filings could bring the retail recovery to a halt.
The possibility of a vaccine that can be administered to the most at-risk populations getting even a limited approval is amazing. However, it's still unclear whether the AstraZeneca candidate -- or another one entirely -- will get an EUA that quickly, or what the implications are for that EUA leading to wider immunizations that help us transition out of the pandemic and into a full recovery.
The struggling industries investors bought hand-over-fist today absolutely need a full recovery to kick in -- and sooner rather than later.