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Options trading Goldman Sachs says investors are underestimating the chance of a COVID-19 vaccine in 2020, an event that could push the S&P 500 11% higher


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Options trading Goldman Sachs says investors are underestimating the chance of a COVID-19 vaccine in 2020, an event that could push the S&P 500 11% higher

Reuters/ Lucas Jackson Goldman Sachs thinks markets are underpricing the prospect that at least one coronavirus vaccine will be developed and ready to use by the end of 2020. The US bank said in a note on Wednesday that its “upside scenario” if a vaccine becomes available by the end of the year is the…

Options trading Goldman Sachs says investors are underestimating the chance of a COVID-19 vaccine in 2020, an event that could push the S&P 500 11% higher

Options trading

options trading Goldman Sachs, Goldman, Goldman signReuters/ Lucas Jackson

  • Goldman Sachs thinks markets are underpricing the prospect that at least one coronavirus vaccine will be developed and ready to use by the end of 2020.
  • The US bank said in a note on Wednesday that its “upside scenario” if a vaccine becomes available by the end of the year is the S&P 500 rising 11%, to 3,700.
  • “Options markets are underpricing the upside for equity indices from an early vaccine,” Kamakshya Trivedi, Zach Pandl, and Dominic Wilson wrote.
  • “We agree that there is now a good chance that at least one vaccine will be FDA-approved by the end of November and broadly distributed by the middle of 2021,” they added.
  • Visit Business Insider’s homepage for more stories.

Investors should expect that at least one coronavirus vaccine will be developed by the end of the year, which could drive the S&P 500 up 11%, Goldman Sachs said in a note on Wednesday.

“We agree that there is now a good chance that at least one vaccine will be FDA-approved by the end of November and broadly distributed by the middle of 2021,” the US banking giant said.

“This kind of timeline could see a substantial boost to GDP relative to a ‘no-vaccine’ case, particularly for the US, which is likely to lead the vaccine race and is likely to experience worse outcomes than in Europe without a vaccine.”

Goldman Sachs said it thinks the S&P 500 could jump 11% from current levels should a vaccine become available by the end of the year.

“Options markets are underpricing the upside for equity indices from an early vaccine,” Kamakshya Trivedi, Zach Pandl, and Dominic Wilson wrote.

“We now see our baseline as consistent with the S&P 500 at around 3,390, the upside case with the S&P 500 at around 3,700, and the downside case with the S&P 500 at a little below 2,200,” they said.

The S&P 500 closed at 3,327 on Wednesday, meaning that a fall to 2,200 would be a drop of about 33%, while a jump to 3,700 would be a gain of 11%.

Read more: Tom Marsico’s growth fund has crushed its benchmark for 13 years — and returned 28 times its peers in 2020. Here’s what he’s been buying, and the beaten-down stocks he plans to grab after the pandemic.

The bank referred to forecasts from Good Judgement, a company that says it uses “superforecasting,” of a 10% chance of a vaccine being broadly available before the first quarter of 2021.

“Using the superforecasters’ estimates for our upside case implies that the current equity market level is consistent with a probability of around 40% for both our baseline and upside cases and 20% for the downside case—in other words, 60% on the ‘no early vaccine’ outcome,” the note said.

Read more: Investors are piling into socially responsible ETFs at an unprecedented rate — and Morgan Stanley says these 4 stocks are best-positioned to profit from the trend

Central banks across the world have enacted various stimulus measures. Investors also remain sensitive to any vaccine-related news, with stocks of pharmaceutical giants recording huge losses or rallies as they release the results of trials.

There are at least 164 research efforts to develop a vaccine, according to the World Health Organization.

By the end of the year, there are likely to be more than 40 coronavirus vaccine candidates in human testing, a recent Business Insider analysis found.

Read more: Harding Loevner’s global stock fund has trounced the market for over 30 years. Here’s an inside look at the simple 4-part stock-picking criteria that helped the firm balloon to $72 billion.

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