Do Survey Respondents Mean What They Say? A Lot Is Riding on the Answer

Corporate Finance & Restructuring

December 7, 2020

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Financial markets rallied furiously on November 9th on the news that Phase 3 trial results to date for the Pfizer/BioNTech COVID-19 vaccine were 90% effective in preventing symptomatic COVID among 96 test patient cases where the virus was detected, considerably better than the 60%-70% effectiveness that was expected from the first vaccines. 

Markets rejoiced as if the end zone was in sight, though much remains unknown about the Pfizer vaccine — including its long-term efficacy and side effects, its availability timetable, its ability to prevent transmission of the virus, and its effectiveness across demographic and ethnic groups. 

The Phase 3 trial will continue until another 70 COVID-19 cases are detected. Pfizer’s vaccine soon will receive emergency FDA approval, but it’s not expected to be widely available to the general public any sooner than springtime. Despite these various unknowns, equity markets rallied 2%-3% on that very day while corporate high-yield bond spreads dropped more than 50 basis points, to their lowest yields ever, amid an economic recovery that is uneven and decelerating. 

Stocks reeling from high exposure to the economic impact of COVID-19, such as airlines and travel & leisure companies, soared that week. Just one week later, Moderna announced that its COVID-19 vaccine was 95% effective in early clinical trials, and the market rally continued. Apparently, financial markets were not anticipating that early vaccines would be so effective in clinical trials.

The sense that most aspects of American life will return to normal in 2021 has become palpable in financial markets, though many credible consumer surveys conducted throughout this pandemic continue to indicate otherwise. Are survey respondents unreliable when it comes to predicting their own behaviors, or are markets mostly ignoring what they are saying? The answer to that question will only become clear as 2021 unfolds.

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