Why a Retail Stocks Rebound Hinges On Vaccine Approval

As pharmaceutical companies around the globe race for a coronavirus vaccine, Wall Street is watching closely.

On Monday, U.S. stocks surged higher following a report from the Financial Times suggesting that the Food and Drug Administration (FDA) may award fast-track authorization to a vaccine being developed by drugmaker AstraZeneca and the University of Oxford as soon as October.

The manufacturers said in a statement that “it would be premature to speculate” on the possibility of their obtaining emergency-use authorization, and a scientist leading the trials told Reuters that regulators could see trial data this year, but the Trump administration is reportedly pushing to approve a vaccine prior to the November election. On Sunday, the President announced that the FDA had awarded emergency authorization for the use of convalescent plasma, taken from patients who have recovered from COVID-19, in treating coronavirus patients.

While the treatment’s efficacy has not yet been established — and even the leading vaccine trials are still in relatively early stages — reports of scientific progress in the fight against the virus have helped fuel stock market rallies.

Retail stocks have been among the biggest beneficiaries of these surges. Amid months of declines due to pandemic-related closures and shifts in consumer spending away from nonessentials, companies like Kohl’s, Urban Outfitters and Foot Locker have seen their share prices jump in response to optimistic vaccine news.

On Monday, Gap Inc. and VF Corp. each rose 7% as investors staked their hopes on an eventual return to pre-pandemic levels of in-store shopping and strengthening footwear and apparel sales. Gap’s stock plummeted to a near-25-year low in April as it suspended rent payments and announced permanent store closures to cut costs, but it has since rebounded by nearly 220%. VF’s recovery has been more modest — the stock is up 44% from its late-March lows — but earlier this month it beat analysts’ forecasts despite a 48% drop in revenue for the first quarter.

Tapestry Inc. and Under Armour likewise saw a 5% boost on Monday, while Foot Locker is up 9% since markets opened for the week. Apparel and footwear retailers stand to benefit not just from shoppers coming back to stores, but also from the gradual reopening of workplaces, schools, events and travel that a vaccine is expected to bring.

The dropoff and recovery in retail traffic since the pandemic began has been linked closely to regional COVID-19 trends. According to Placer.ai, which tracks retail foot traffic, department stores saw upward visitor trends stall or even reverse in July as coronavirus cases surged in states like California, Texas and Florida.

“It increasingly appears that the success of this sector — at least in the short term — will depend on the government’s ability to effectively control the impact of the pandemic,” wrote Placer.ai’s Jocelyn Bauer. “Should COVID’s reign continue deeper into 2020 and beyond, the effect could be very difficult to overcome.”

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