The next month or two has the potential to wreak havoc in the health-care sector and the market as a barrage of COVID-19 vaccine test results roll in at the tail end of the U.S. presidential election.

“The vaccine outlook will ultimately dwarf the election in terms of market impact,” Goldman Sachs’ strategists said. An earlier-than-expected vaccine would send equity values higher while a delay could send the market lower no matter what the election’s outcome, the bank’s analysis shows.

With an emergency use authorization now expected around year end, the U.S. Food and Drug Administration is convening a meeting Thursday to set the stage.

Mostly it will be the agency looking to get a public endorsement on their stance on COVID-19 vaccine safety guidance and to ease concerns over the politicization of an approval, SVB Leerink analyst Geoffrey Porges said in an interview.

Results from vaccine front-runners, Pfizer Inc. and German partner BioNTech SE, are expected within the next few weeks. Moderna Inc. may follow closely behind in November. And the first late-stage data from a single-shot regimen, Johnson & Johnson’s vaccine, could have results before the end of the year. The study however, is currently paused.

The options market show expectation for further gains in Moderna shares, with the open interest in bullish contracts outnumbering bearish ones, according to data compiled by Bloomberg. For Pfizer Inc., calls outpaced puts by a ratio of 2-to-1. While bearish contracts still dominated options for BioNTech SE, trading was more active in calls recently.

“For stocks the critical event is the declaration of efficacy,” Porges said. If a vaccine can show 75 per cent or better efficacy “stocks will go up,” and particularly those working on similar messenger RNA vaccines like Moderna but also smaller peers like Arcturus Therapeutics Holdings Inc., Translate Bio Inc. and CureVac NV, he said.

It doesn’t matter that they won’t create lot of value, “but there will be a perception that they will,” according to Porges. And it’s not just the companies racing to come up with treatments for the pandemic. With daytraders driving, by some estimates 20 per cent to as much as 40 per cent of the trading volume, results could drive a fresh rally across the stock market.

Lower Efficacy

For some, even efficacy rates in the low 60 per cent range would be enough for investors to take a rosy view on the return-to-work and pro-cyclical stocks, Goldman analysts led by Asad Haider wrote. Rates below 50 per cent are sure to disappoint he warned and may spur some rotational trades.

“Under this scenario there would be even more focus on the vaccine’s impact on severe COVID-19 disease,” a secondary goal of some vaccine studies, according to the bank. And if Pfizer’s shot fails, other near-term trial results “could be reassuring to the market.”

“The progress or setbacks of a vaccine are the most important determinant of market direction,” said George Ball, the chairman of Houston-based investment firm Sanders Morris Harris Group Inc. The market has priced in the U.S. presidential election and active traders have already hedged their positions using options, he said.

“The emergence of the Robinhooders as a 20 per cent rather than the 10 per cent weight in the market makes a huge difference in the direction of stock prices,” and they’ve been driving stocks for at least the last six months, Ball said. “It’s something that’s going to end badly. It always has and it always will.”

Jared Holz, a Jefferies trading desk strategist, agrees.

“There’s going to be much more of a euphoric response for the broader market and for the vaccine stocks,” but for the companies racing to develop an inoculation, at some point the competitive landscape and vaccine pricing will come into play and those stocks will fall, he said.