Goldman Sachs says investors are underestimating the chance of a COVID-19 vaccine in 2020, an event that could push the S&P 500 11% higher

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

Investors should expect that at least one coronavirus vaccine will be developed by the end of the year, which could drive the S&P 500 up 11%, Goldman Sachs said in a note on Wednesday.

"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," the US banking giant said.

"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."

Goldman Sachs said it thinks the S&P 500 could jump 11% from current levels should a vaccine become available by the end of the year.

"Options markets are underpricing the upside for equity indices from an early vaccine," 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," they said.

The S&P 500 closed at 3,327 on Wednesday, meaning that a fall to 2,200 would be a drop of about 33%, while a jump to 3,700 would be a gain of 11%.

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The bank referred to forecasts from Good Judgment, a company that says it uses "superforecasting," of a 10% chance of a vaccine being broadly available before the first quarter of 2021.

"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," the note said.

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Central banks across the world have enacted various stimulus measures. Investors also remain sensitive to any vaccine-related news, with stocks of pharmaceutical giants recording huge losses or rallies as they release the results of trials.

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

By the end of the year, there are likely to be more than 40 coronavirus vaccine candidates in human testing, a recent Business Insider analysis found.

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