VBI Vaccines has lost money in each of the four years it has been listed on the Nasdaq stock exchange and last month told investors not to expect that to change anytime soon. Yet, since its mid-March low amid the pandemic-related shutdown, the company’s share price has rocketed by more than 450 percent.
The jump comes even as VBI’s candidate for a vaccine for the coronavirus remains in the earliest stage of development, trailing well behind alternatives from bigger and better-known rivals that already are being tested on humans.
At first glance, VBI — which was almost dropped from the Nasdaq last year after its share price languished below $1 — looks like a perfect example of how the stock market has become detached from the reality of a bruised and battered U.S. economy. Stock prices reached a fresh all-time high on Tuesday, despite a double-digit unemployment rate and the collapse in recent months of perhaps 100,000 small businesses.
The Standard & Poor’s 500-stock index — the best-known broad market gauge — has risen more than 50 percent since March, completing the fastest rebound from a bear market in history. President Trump has repeatedly celebrated the market’s performance, saying it represented an endorsement of his agenda and warning that a Democratic victory in November would cause stocks to “go down like a rock.”
Prominent lawmakers including Sen. Bernie Sanders (I-Vt.) and Rep. Alexandria Ocasio-Cortez (D-N.Y.) cite the apparent disconnect between financial markets and the real economy as evidence of a malfunctioning capitalist system.
A closer look at both VBI and the broader stock market, however, suggests that Wall Street is neither a proxy for the real economy nor a financial casino entirely divorced from the lives of everyday Americans.
“The idea that the stock market is the economy and the economy is the stock market — the correlation between the two is tenuous, at best,” said Barry Ritholtz, whose N.Y.-based firm manages $1.5 billion in assets.
There is more to the tiny biotech company than red ink and long-shot projects. And though soaring markets may seem at odds with the ailing economy, their inner workings show that investors are distinguishing between industries that have been crushed by the pandemic and those that are poised to prosper.
As Americans in recent months traded traveling for digital connections, for example, the value of United Airlines fell by roughly one-half while shares of Nvidia, a maker of computer chips for gaming devices and data centers, almost doubled.
“There’s always a difference between the market and the economy,” said Howard Silverblatt, senior index analyst for S&P Dow Jones Indices in New York. “We’re up because we’re looking past 2020 and looking at 2021.”
In VBI’s case, both the company and independent analysts say recent achievements support its share price rise. The Cambridge, Mass.-based company earlier this month received $56 million in funding from the Canadian government, which is backing its research into a vaccine for covid-19 and two other coronaviruses known as SARS and MERS. The cash infusion came a few months after VBI raised $57 million in an April stock offering.
While a coronavirus product remains far off, the company is moving closer to approval from American and European regulators to sell its hepatitis B vaccine, which already is on the market in Israel. VBI’s vaccine to treat glioblastoma, the virulent form of brain cancer that killed Sens. John McCain and Edward M. Kennedy, demonstrated in clinical studies the ability to shrink tumors by more than 50 percent.
“Since March 2020 there have been a number of achievements which have substantially changed the fundamentals of the company,” Jeff Baxter, VBI’s chief executive, said via email.
VBI’s stock price now hovers near $4, up from less than $1 in March.
VBI’s claim to fame is a proprietary vaccine platform known as an “enveloped virus-like particle” designed to mimic a virus to trigger the body’s immune response. The innovative design has attracted institutional shareholders including Perceptive Advisors, a prominent health-care hedge fund.
VBI also boasts an experienced management team, including Baxter, a veteran pharmaceutical executive who previously worked at GlaxoSmithKline. The company’s chief scientific officer, David Anderson, is a former professor at Harvard Medical School.
“People may have looked at them for the first time because of the covid news flow and, once they looked under the hood thought ‘hey, this is interesting,’ ” said Leland Gershell, senior analyst covering biopharmaceuticals at Oppenheimer & Co. in New York. “It’s now a stock on people’s radar.”
Whatever VBI’s fortunes, Wall Street is the wrong place to look for a real-time report card on the $19 trillion U.S. economy.
The stock market captures only the fortunes of publicly traded companies, those that are owned by individual and institutional shareholders. Most of the businesses that Americans patronize on a daily basis — local restaurants, dry cleaners, hardware stores — are not part of the major market indexes: the Dow Jones industrial average, the S&P 500 and the tech-heavy Nasdaq.
All of the companies in the S&P 500 combined, for example, employ less than one-fifth of the nation’s 140 million workers. Small businesses, which have been devastated by the pandemic, account for almost one-half of private sector employment, according to the Small Business Administration.
The S&P 500’s ascent also doesn’t mean that the whole stock market is rising. Since the index gives greater weight to companies with the largest market value, just 10 companies account for 27 percent of its value, according to Silverblatt.
In practice, the index is being driven higher by a relative handful of prominent technology companies, including Apple, Alphabet, Microsoft, Amazon and Facebook.
“The index isn’t the real world,” Ritholtz said.
Despite talk of a market and economy that are at odds, investors are not indiscriminately lifting all stocks. Industries that have been badly damaged by the pandemic — such as airlines and hotels — are doing poorly while those that have retooled for socially distanced operations are thriving.
Through Aug. 17, the information technology and consumer discretionary sectors were both up more than 20 percent this year, outperforming the broader market. Providers of videoconferencing software, cloud computing platforms, communications services as well as online retailers are prospering from the shift of tens of millions of Americans to remote work.
Energy companies, down more than one-third, and financial institutions were lagging.
Even within sectors, investors are flocking to companies that have adapted and shunning those that haven’t. Target’s stock is up almost 10 percent this year, reflecting its ability to stay open throughout the pandemic, while shares of Kohl’s, which closed all of its 1,159 stores for several weeks beginning March 20, have lost roughly half their value.
The market also is benefiting from massive monetary stimulus by the Federal Reserve, which has added $2.8 trillion to its balance sheet during the pandemic. The money supply has increased by 22 percent over the past year, the fastest rate in history and twice the pace of the inflationary 1970s, according to Richard Bernstein, an investment manager in New York.
“I don’t think people understand this money supply growth is so far off the charts, we don’t have anything to compare it to,” he said.
That’s precisely what worries some analysts. The International Monetary Fund warned in June that the gap between asset prices and fundamentals was “near historic highs,” leaving the market exposed to a calamitous sell-off that could lengthen the recession.
Stock prices relative to company sales also are now higher than just before the tech bubble popped in 2000, according to Peter Boockvar, chief investment adviser for the Bleakley Advisory Group.
“This is a highly expensive market … egged on by the Fed. It will last until it doesn’t,” he said.
To many Americans, Wall Street’s rapid recovery — even as 28 million Americans remain jobless — is a sign of something profoundly amiss in the economic system. The gains from rising stock prices go disproportionately to the well-off: 84 percent of American households with an annual income of $100,000 or greater own stocks vs. 22 percent of those making $40,000 or less, according to a recent Gallup survey.
Sanders, the avowed socialist and two-time Democratic presidential candidate, earlier this month criticized Fed actions that backstopped financial markets, saying they aided billionaires at the expense of the working class.
“We are currently witnessing what is likely the greatest transfer of wealth from the middle class and the poor to the very rich in the modern history of this country,” he said on the Senate floor.
Likewise, Senate Minority Leader Charles E. Schumer (D-N.Y.) attacked the president’s proposal for a cut in the capital gains tax, saying it would benefit only “wealthy investors.” One-quarter of all stocks are held in taxable accounts, according to Steve Rosenthal of the nonpartisan Tax Policy Center.
The president, who often cites rising stock prices as validation of his performance — and dismisses them when they fall — has latched onto Wall Street’s recent gains.
“The stock market’s rebound signals a 'V'-shaped recovery, stronger than our competitors anywhere in the world,” Trump said at the White House on Wednesday. “We had to turn off the economy, and now we’re turning it back on, and that’s beyond a 'V' shape. This is going to be very strong; it’s called a “strong ‘V.’ "
But real-time data on spending and employment instead show that the economic recovery has plateaued in recent weeks as Congress and the administration failed to reach a deal on new emergency funding.
The expiration of the extra $600 in weekly unemployment benefits will provide a new test for the economy and the stock market, which also faces the danger of a renewed surge of coronavirus infections this fall as well as the presidential election.
At VBI, meanwhile, executives are looking ahead to what they hope will be major accomplishments. Though they were late to the coronavirus vaccine race, the recipe they are developing is being designed to cope with future mutations of the virus, a potential competitive advantage.
Baxter, the CEO, also anticipates filing before year end the necessary paperwork with regulators in the United States, Europe and Canada for authorization to sell VBI’s hepatitis B vaccine. There is a “very, very high probability of approval” in 2021 with sales the following year, he told an investment conference in June.
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