One consequence of the coronavirus crisis was that vaccine stocks have been increasing exponentially. This group includes big pharmaceutical companies and smaller biotechs. In recent weeks, certain stocks have been backing off and giving back a good 15 to 25% of their gains.

Puzzling Rise

The simultaneous rise in these stocks is puzzling due to a couple of factors. One, there's likely to be one or two companies that are successful, yet nearly every company is trading as if they are going to successfully develop a vaccine. For example, stocks like Novavax (NVAX  ) and Vaxart (VXRT  ) were up 20x and 15x respectively from their March lows.

Second, the odds of success in this endeavor are low. And, any company obviously has great incentives to make it seem like the work they are doing is promising in order to attract investor money and government money. Additionally, there are many regulatory hurdles to prove that the vaccine is safe and effective.

Third, there's no guarantee that companies will earn huge sums even if a vaccine is developed given that there will be considerable public pressure to keep prices low. Traditionally, it takes nearly four years to prove that a vaccine is safe and can be produced and distributed in a way that ensures quality.

Another Culture War

It's in the Trump Administration's and these companies' interests to ignore these inconvenient realities. Thinking ahead, it's not hard to imagine a scenario, where a vaccine becomes available, but it becomes another political issue.

Many on the Right might choose to not take the vaccine given their opposition to wearing masks and following public health guidelines. The Left will also be distrustful of a vaccine that they may interpret as being rushed through as a prop for President Trump's reelection efforts. Vaccines are only effective if enough people take them.

Stocks Backing Off

It does seem that the enthusiasm for these stocks is abating. One clear indication was the heavy selling by insiders as these stocks hit lofty levels. In recent weeks, the smaller biotech companies have seen major pullbacks especially in more speculative names like Moderna (MRNA  ), Novavax, and Vaxart. The larger pharmaceutical companies' upside momentum seems to have stalled and they have been moving sideways.

For most investors, the vaccine stocks should be in the "too hard" basket. Instead, the effect of a successful vaccine would be monster rallies in stocks in the travel sector like airlines, hotels, and casinos. More certain are stocks like AstraZeneca (AZN  ) who have made promising advances in treatments or Abbot Laboratories (ABT  ) who is promising $5 tests that can be available within 30 minutes.