There’s a hot new trade in the stock market that no one in their right mind is excited about.
This emerging theme involves, among other stocks, Moderna Inc. MRNA-Q
At this point, you might be thinking, “Oh yeah, Moderna. I remember, pharmaceutical company, got hot during the …”
You suddenly see where this is going. The recent action in vaccine-related stocks like Moderna is tied to the spread of H5N1 avian influenza, otherwise known as bird flu, and the growing fears that it could spark the next pandemic. Over the past two months, Moderna’s share price has risen by 33 per cent, as the virus has affected millions of animals in Canada and across nearly every U.S. state, while making the jump to humans in a handful of U.S. cases.
Should you be protecting your investments somehow? A worst-case scenario still seems remote, and public-health officials say the risk to the general public is low. But we’ve all seen this disaster movie come to life once before. Now, it seems like nature may already have a sequel in the works.
Last week, virologist Robert Redfield, who led the U.S. Centers for Disease Control through the first year of the COVID-19 crisis, said: “It’s not a question of if, it’s more of a question of when we will have a bird flu pandemic.”
A group of vaccine makers have seen big swings in their share prices lately, from Pfizer Inc. PFE-N to Novavax Inc. NVAX-Q to BioNTech SE BNTX-Q. Germany-based CureVac NV, which has a H5N1 vaccine in early-stage testing, saw its shares double in just over a month at one point.
But Moderna seems to be serving as the financial markets’ barometer of the risk of a new global health crisis taking hold. That’s partly owing to a report in the Financial Times a few weeks ago that the company was close to signing a deal with the U.S. government to test and supply a bird flu vaccine.
Moderna, of course, was at the forefront of the COVID-19 vaccine effort, which made the company a household name and bestowed it, briefly, with a US$200-billion valuation. As the pandemic faded, so too did Moderna’s profile, its stock falling by as much as 85 per cent.
All of a sudden, we’re back to talking about pandemic darlings and doesn’t that make you want to just walk into the sea. For now, at least, there’s no sign of a resurgence of the likes of Zoom Video Communications Inc. ZM-Q, Peloton Interactive Inc. PTON-Q and Docusign Inc. DOCU-Q, which are all nursing losses in stock price on the year.
It sure feels like we’re living in an age of disasters. Pandemics. War in Europe. The growing threat of nuclear conflict. Crazy weather all the time.
So if you have money in the stock market, it’s reasonable to wonder if you’re financially overexposed to disasters. On this matter, a little thought experiment may offer some clarity.
Imagine you’re back at the end of 2019, and you go out for dinner to celebrate what promises to be a totally normal, not-at-all-dystopian year ahead.
You open a fortune cookie, which says:
-the worst pandemic in a century will soon be under way, unleashing waves of infections over the ensuing two-plus years, ultimately killing millions
-the stock market will crash, billions of people will be confined to their homes, and the global economy will be largely shut down
-policy makers will lose control of inflation, necessitating one of the most aggressive series of rate hikes ever implemented
Sure, we’re talking about an enormous fortune cookie. But more importantly, forearmed with the knowledge of imminent doom, how might a reasonable investor react?
By selling everything, maybe. Even aggressively betting against the stock market wouldn’t seem crazy under the circumstances.
But that would have been the exact wrong move, unless you reversed course eight trading days into the crisis. Because that is precisely when the stock market selloff ended, if you use the World Health Organization’s pandemic declaration as a starting point.
For most regular investors, staying in the market over that entire stretch of rolling calamities would have been the correct course.
From the end of 2019 until today, the S&P/TSX Composite Index has generated a compound return of 8 per cent a year, once dividends are factored in. Not bad, considering there was a 37-per-cent drop in Canadian stocks within that timeframe.
Hanging on to U.S. stocks would have been an even better play. The S&P 500 averaged a 14-per-cent annual return over that time. The Nasdaq Composite Index generated 17 per cent annually.
This is the conundrum of financial disaster avoidance. Even if you can see it coming, you’re never going to time it just right. So you will almost certainly end up worse off trying to sidestep the crash rather than just riding it out.
There are things you can do to brace your finances. Make sure your level of risk is appropriate for your age and circumstances. Rebalance. Set up an emergency fund, and ensure your insurance is adequate.
But when it comes to the stock market, don’t let a crisis lure you into committing your own self-inflicted financial disaster.