One chart summarizes the state of the stock market last week.

This chart shows the latest results of the weekly survey of the American Association of Individual Investors, or AAII, compared to the results of last week’s survey.

Source: AAII

Every week since 1987, AAII conducts a survey. There’s just one question in the survey — are you bullish, bearish, or neutral about the next six months?

This survey’s long history allows us to test the usefulness of the data. That history shows the percentage of investors who are neutral is the most reliable indicator of future market action.

Initially, this might not seem like it makes much sense. But neutral investors are the ones with cash on the sidelines and looking for an opportunity to put that money to work. They are potential buyers.

Bears are unlikely to buy since they expect additional declines. Bulls are unlikely to buy since they are most likely already invested. That confirms that neutral investors could be the most useful group to track.

Last week, this number dropped sharply. The decline is most likely due to the fact that Pfizer announced that its partnership with BioNTech was delivering promising results.

The two companies announced…

…their mRNA-based vaccine candidate, BNT162b2, against SARS-CoV-2 has demonstrated evidence of efficacy against COVID-19 in participants without prior evidence of SARS-CoV-2 infection, based on the first interim efficacy analysis conducted on November 8, 2020 by an external, independent Data Monitoring Committee (DMC) from the Phase 3 clinical study.

The case split between vaccinated individuals and those who received the placebo indicates a vaccine efficacy rate above 90%, at 7 days after the second dose. This means that protection is achieved 28 days after the initiation of the vaccination, which consists of a 2-dose schedule.

This is certainly good news. But I’m not sure it’s good for the stock market or the economy. I know that may sound counterintuitive, so let me explain…

A Vaccine Isn’t A Cure For The Economy

The good news is obvious. This could be the beginning of the end of the pandemic. That’s especially true since other companies are likely to find success like Pfizer did, and there should be an ample supply of vaccine early next year.

Now, for a more somber assessment. Since that announcement, I’ve talked to people who will quickly accept the vaccine. I’ve also talked with some who will not take the vaccine until it’s proven safe, whatever that means to them.

Getting the vaccine to those willing to take the shots is a logistical challenge and that could take months. I believe there are some challenges for the economy that we face while we wait.

As we wait for the vaccine, I expect that some consumers will become more cautious. (We’re already getting some evidence of that, which I discussed in this piece.) After all, they made it this long, why not behave extra carefully for just a few more weeks? This would lead to lower consumer spending, higher unemployment, and declines in economic growth. Again.

That scenario is consistent with the economic data. The chart below shows that there is a 100% probability of the recession continuing into 2021.

Source: Federal Reserve

Closing Thoughts

The economy is operating at about 80% of its pre-pandemic level. And the Federal Reserve’s model shows the recovery is unlikely to be rapid. In the past, this model has been highly accurate.

Continued weakness is consistent with my expectation that consumers will pull back on spending while waiting for a vaccine.

Another possible scenario is that consumers become less cautious as the vaccine is rolled out. That increases risk and creates a possibility that the healthcare system becomes overwhelmed, leading to shutdowns and another economic decline.

That’s why I remain in the bearish camp and see little upside potential in the current stock market.

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