With the medical industry trying its best to develop a vaccine to fight the coronavirus, analysts are preparing for a drop in the markets.
The world is still trying to recover its economy brought about by the shock caused by COVID-19. A lot of experts have already expressed their opinion that a vaccine should not be a cure-all solution and the public should focus on following preventive measures.
A lot of the big pharmaceutical companies are ramping up on vaccine trials.
This month, Moderna showed positive results on its vaccine trials which caused its stock price to rise. However, a vaccine won’t really save the markets right away as the majority of strategists are expecting the worst things to come.
As for this week, a potential coronavirus vaccine developed by Oxford University along with AstraZeneca that produced promising results in their large, early-stage human trial.
In addition, Pfizer and BioNTech also reported early positive data on a joint vaccine candidate securing a deal with the U.S. government worth US$1.95 billion [AU$2.73 billion].
Prepare for a downtrend in the second half of the year
However, despite the positive vaccine developments brought about by the big pharmas, one market strategist speculated that investors should prepare for a “downside correction” in the equity markets starting September or October.
He added that a break below the 3,000 point level of the S&P 500 could trigger a market downtrend. As of this writing, the S&P 500 sits at around 3,276 points.
As for a short-term advisory on the U.S. markets, this is what he told CNBC:
“I would suggest that everyone get ready for an August peak and a September or October correction, if not a protracted rolling W crash into year-end.”
He also added that institutional money is out and speculative money is in, with much of the rally influenced by Robinhood investors in which he termed a “telltale sign for downside risk” and relates this to the 1929 market crash.
Long term declines will be felt even if the vaccine is released
Raghuram Rajan, a former Indian central bank governor, also expressed his concerns for the markets as news of a vaccine seemed to keep the markets optimistic.
He pointed out that a lot of small businesses that closed in March aren’t going to reopen even when the situation improves as he told CNBC:
“As this goes on, more and more businesses find that a long period without revenue, but high cost, implies that they simply don’t have a chance, and they’re closing down.”
Previously, experts also warned that the pandemic could lead to more protectionism around the world implying that countries would attempt to safeguard their domestic industries and Rajan said that this protectionism would delay economic recovery.
As July is coming to a close, investors shall see if the markets moving forward would sustain this euphoria or would eventually tumble due to COVID-19.