Goldman Sachs says investors are underestimating the chance of a COVID-19 vaccine in 2020, an event that .. - Markets Insider

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Reuters/ Lucas Jackson

• Goldman Sachs thinks markets are underpricing the prospect that at least one coronavirus vaccine will be developed and ready for use by the end of 2020.
• The US bank said in a note Wednesday that it its "upside scenario" is for the S&P 500 to rise 11% to 3,700 by year end in the event of a vaccine becoming available.
• "Options markets are underpricing the upside for equity indices from an early vaccine," a Goldman team of 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 price that at least one vaccine will be developed by year end which could drive the S&P 500 up 11%, Goldman Sachs said. 

In a note Wednesday, the US banking giant, said: "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."

"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," the bank added. 

Goldman Sachs thinks the S&P 500 could jump 11% from current levels should a vaccine come by year end. 

"Options markets are underpricing the upside for equity indices from an early vaccine," a Goldman team of 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," Goldman Sachs said.

The S&P closed at 3,327 on Wednesday, meaning that a fall to 2,200 would be a drop of around 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 uses superforecasting, that predict a 10% chance of a vaccine being broadly available before the first quarter of 2021. The chance of this has now risen, the bank said. 

"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."

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 engaged in various stimulus packages. Investors also remained very sensitive to any vaccine related news, with stocks recording huge losses and rallies as pharmaceutical giants posted mixed results to the trials. 

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

By year end there will likely be more than 40 coronavirus vaccine candidates in human testing, according to a recent Business Insider review.

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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