By Shawn Langlois, MarketWatch
The stock market’s ability to shrug off the economic destruction and gloomy coronavirus headlines continues to enrich emboldened bulls and baffle even some of the savviest Wall Street pros.
A big dose of reality, however, looms large, if Solomon Tadesse, the global head of quantitative research at Societe Generale, has it right with his recent outlook.
“With questions on the effectiveness and wide availability of vaccines remaining, as well as the potential impacts of the pandemic’s damage to the economy, there may be more downside risk from markets overshooting,” Tadesse wrote in a note to clients.
He pointed to historical data that shows just how extraordinary the rebound from the lows earlier this year has been. Going back to 1929, the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.53% has recovered by 27%, on average, within a year of the 15 drawdowns of at least 30% on record.
Strong, no doubt, but nothing like the 45% in four months that we’ve just witnessed.
And if investors are hoping a vaccine keeps the fire under this market lit, well, Tadesse has plenty of doubts as to whether that will be a catalyst in the short term — or long term, for that matter.
There are 200 vaccines under development, and none is guaranteed to be effective on a global scale. HIV, for instance, still no vaccine. Even if there is one, he said, anti-vaxxers and others who decline the vaccine will slow down the necessary steps toward herd immunity.
Lastly, the U.S. economy, he added, could take a while to get back to business as usual. Even if a vaccine is available, the public, having adapted to a new normal, will likely remain hesitant to gather in large groups and ride public transportation, which will pose a headwind to growth.
“Long-term deleterious economic after-effects of pandemics could span multiple decades,” he said.
Stocks started the week on a positive note, with the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.13% , S&P 500 /zigman2/quotes/210599714/realtime SPX +0.53% and Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +1.42% all higher Monday.