After last week’s strong stretch of trading sessions, stocks are getting off to a much weaker start this morning. Investors continue to watch Covid-19 infections rise in the U.S., where states have begun ramping up lockdown efforts. New York and California, in particular, are walking-back many orders that once reopened local economies.
Now, another rolling state-by-state shutdown could be on its way. That’s got bulls feeling a little nervous with the major indexes near their all-time highs.
“In the near-term, the risk of a modest equity market pullback has risen because the worsening virus situation in the U.S. could spur a positioning unwind,” explained Goldman Sachs strategists in a note to clients.
“Although vaccine approval in the U.S. appears imminent, increased restrictions or shutdowns in the U.S. could slow the near-term recovery in economic growth.”
The market needs to remember that a vaccine, while helpful, won’t instantly revitalize the West.
Manufacturing and administering the vaccine will take some time. Widespread vaccine use might not happen until late next year.
And in places like the U.S., where the labor market recovery has slowed, that means a long bout of sluggish growth could grip the first few quarters of 2021. Even in countries with stricter lockdown conditions and mask mandates, Covid-19 is spreading like wildfire.
Within U.S. borders, over 14 million cases have now been confirmed. It should be noted that there’s new controversy over how accurate the current Covid-19 testing methods are. Experts who reviewed data out of New York believe that 90% of the confirmed cases discovered there could potentially be false positives.
Still, though, even if the data we’re working with is found to be wildly inaccurate, it’s unlikely to lift any ongoing Covid-related restrictions.
It’s all because, according to recent polls, the fear of contracting Covid is enough to keep most consumers at home. California could lift every lockdown measure the state has in place, but it’s unlikely to result in an economic revival.
The media has made Covid into a terrifying boogeyman. And until we get a vaccine that can slay the monster, there’s unlikely to be progress made in that regard.
Ed Yardeni, president and chief investment strategist at Yardeni Research, commented on that topic while discussing the November jobs report.
“The clear message is that while the recovery in the labor market has lagged behind the recovery in overall GDP, both continue to regain ground lost during the lockdown recession of March and April,” Yardeni wrote.
“Renewed lockdown restrictions in response to the third wave of the pandemic are likely to weigh on the economy in coming months, but we don’t expect a double-dip. The economy could be booming next spring if enough of us are inoculated against the virus.”
So, it could easily be argued that the market’s destiny remains linked with a vaccine. If Big Pharma can get it injected into at-risk Americans in a timely manner, the long-term bull market might continue.
Shorter-term, a dovish Fed and another round of government stimulus should keep stocks afloat.
But that doesn’t mean the risk for a sudden downturn has evaporated completely. If the U.S. goes back into full quarantine, you can kiss the “vaccine rally” goodbye.
Regardless of how much cash is pumped into the U.S. economy by the powers that be.
