Stocks surge on Moderna coronavirus vaccine optimism

Clearnomics Founder & CEO James Liu joins Yahoo Finance’s Zack Guzman to break down Monday's market rally, as Moderna reports positive data on an early-stage coronavirus vaccine.

Video Transcript

ZACK GUZMAN: Some interesting news on the vaccine front this morning when Moderna released results from their phase I trial showing a positive immune effect in about eight patients that it was tested on matching the immune response is to be expected from people who were naturally diagnosed with COVID-19 after contracting coronavirus here.

The vaccine will now move forward with a phase II trial plan with about 600 patients soon according to the update that we got from a Moderna CEO earlier today. He chatted with Yahoo Finance just a few minutes ago-- want to play his timeline expectations here for the vaccine moving forward. Take a listen.

STEPHANE BANCEL: The current plan is the following-- we said this morning we are working hard with the agency to be able to solve a phase III. Thousands of people tested in the phase III study as early as July. It will take a bit of time to enroll thousands of people. And then you have to basically run a placebo-controlled study to see with natural infection in the fall. So the earliest time could be as ready to send all the data to [INAUDIBLE] toward the end of the year. And then it will really depend on how long it would take them to then approve it.

ZACK GUZMAN: There you go. That's the latest in terms of the timeline potentially by the end of the year. And that would be President Trump's timeline, as well, that some have called too optimistic. But nonetheless today, the market's clearly buying into the timeline. For more on that and the market reaction to the news we got, want to bring our next guest, James Liu, Clearnomics founder and CEO joins us on the Hangout.

And James, I mean, it's a big move. I mean, it's the biggest move to the upside we've seen in five weeks. So what's your take on this, as a bit of the market maybe getting ahead of the results here, you mind, just a phase I trial?

JAMES LIU: Yeah, well, thanks a lot, Zack. Good to see you. Basically there is a lot of buying the boomers selling the news to some extent happening right now. This is all very positive news. But, as you heard Moderna CEO say, it'll be some time before this is actually put into place. And regardless of whether or not we have a vaccine, we know that the economy is set to reopen nationwide over the next couple months.

And so the real question for investors is, what kind of bounce back can we basically expect? And right now the underlying assumption is, obviously there are parts of the economy, which are going to be deeply impacted-- you know, restaurants, maybe traditional retailers, in-store shopping. That's where a vaccine really could help.

But then there are other parts of the economy where the productive capacity of that part of the economy really hasn't been affected that much by a two or three-month shutdown. And so once the economy comes back, a lot of places can get back to work, hopefully responsibly so we don't have a second wave. But we should see some rebound in some of the economic numbers.

That said, it could take a while before we actually see a full rebound. If you look at the Q2 consensus numbers for GDP, we're looking at about a 32% decline in GDP. By now it's expected that the unemployment rate will jump up to somewhere around 20%, maybe 25% over the next couple of months. And so it will be slow coming in terms of that overall recovery.

ZACK GUZMAN: Yeah, you have the-- you kind of have the optimism there from the latest report that we got on the jobs front. And the idea that a lot of these temporary layoffs would result in a very quick snap back to normal employment picture because those people were just furloughed temporarily. But, I mean, when you beyond it, we're still seeing just amazing historical numbers in terms of unemployment claims week over week being applied for out there.

So, I mean, when you look at those, how do you kind of square, I guess, maybe the idea that the worst is over versus we're still seeing bad numbers here? So what do you take that on on face value? And how do you see how the market reaction to all of this moving forward?

JAMES LIU: Yeah, , well, that's right, Zack. I mean, the worst is still happening right now under our noses as we speak. The difference is that we know exactly why it's happening, which is very strange from an economic perspective. Usually you're trying to piece together the puzzle in order to figure out what exactly is driving this. And so we know exactly what's happening.

The question is simply, you know, how bad is it, which is what the economic data tell us, even though they're backward looking. They do tell us the general magnitude. And that magnitude is, as many economists had expected, that this is probably going to show some of the worst numbers since the Great Depression but that a lot of folks can, in fact, hopefully get back to work.

And if they do, the factories, the equipment, the capital that we have in place in this economy are still perfectly good. And we're not at a point, yet, where a lot of the workers have either lost their training or need to get retrained or need to be reeducated on how to do certain things. That's certainly not the case here. So some parts of the economy can bounce back pretty quickly.

If that happens, that's kind of the scenario that the market is pricing in. I mean, you mentioned the market rally today. Since the bottom back in March, the market's up 32%. And so clearly there's some optimism that it's baking in. I think it's baking in exactly the fact that once people do get back to work, many parts of the economy can hopefully see workers come back, reverse those furloughs, those temporary layoffs, and basically get back to business.

ZACK GUZMAN: Yeah, and we're going to dig into this a little bit later in the show and in more detail. But we did get that interview with "60 Minutes" and Fed Chair Jay Powell over the weekend where he did say that he doesn't think that they're out of ammo yet in terms of responding to all this. He has been pushing for more on the fiscal front. Of course, we got that also passed on the House on Friday, the Heroes Act and the Democrats and what they're trying to push on that front.

But when we look at kind of responding to this, the longer it drags on, a lot of people are saying that more needs to be done. But it's not likely to come from that package that just passed the House. So, I mean, how do you look at the way that they have responded so far in the way that Democrats now want to double, essentially, the $3 trillion in stimulus that's already been passed? Is that going to be enough to weather the storm?

JAMES LIU: Yeah, that's a tricky situation, Zack. You know, I would hate for us to have to test the limits of the Fed-- what the limits of fiscal policy. I mean, those are scary thoughts if it comes to that. Hopefully it won't. But the point is that a lot of monetary and fiscal policy has been needed in order to keep the economy on life support as we get through this crisis. And then once the economy can stand on its own again, i.e., once businesses can start to reopen, we can hopefully pull back on the life support.

Now, so far, it's clear that the Fed has done every-- it's basically throwing the entire kitchen sink at the problem. It's pulled out all the stops. You know, the myriad of alphabet soup of programs to expanding its balance sheet to almost $7 trillion, which just a couple of months ago would have been absolutely unheard of. You know, all that has taken place.

Fiscal policy, I think, has been a little bit slower to respond, especially for that money to flow through PPP or through stimulus checks that where it needs to be. But, in general, this is not just going to rely on government response but also on private balance sheets. And so far it's clear that some areas of economy are much worse hurt than others. Those who can hopefully bounce back pretty quickly, if we can keep those on life support until the economy reopens, then we could start to see those economic numbers bounce back.

ZACK GUZMAN: Yeah, and hopefully, I mean, it sounds like there's still much more to be done. But we are still seeing that trickle through. As you said, it takes time for some of those stimulus measures to actually reach the end consumer that have been battling all of this as well. But James Liu, the CEO of Clearnomics-- appreciate you taking the time. Always good to chat with you.

JAMES LIU: Great, thanks, Zack.