The US coronavirus outbreak will “have a very long tail”, Morgan Stanley’s biotech analyst Matthew Harrison writes, in a note dated Sunday, striking a cautious tone on the timeline for reopening the world’s largest economy.
Optimism around a “reopening” has blossomed recently thanks in part to an apparent flattening of key “curves” in New York (e.g., hospitalizations) even as the death toll (the most macabre of all lagging indicators) continues to mount.
Trump administration officials, meanwhile, are walking a fine line between preserving whatever’s left of the public’s sanity and not setting unrealistic goals. The president himself was careful on Friday to avoid mentioning any specific dates, having apparently learned something from setting an “aspirational” Easter target, only to postpone it indefinitely.
Read more: Trump ‘Hopes To God’ He Makes The Right Decision On Virus, Economy
In what he amusingly describes as your “first and only chance to have a Morgan Stanley biotech analyst tell you what he thinks about the market”, the above mentioned Harrison says it’s been “striking to see how investors have reacted to the first signs that new COVID-19 cases in New York are starting to stabilize”.
While he “understands the desire for optimism”, Harrison cautions “that the US outbreak is far from over”.
Not only that, he warns that “recovering from this acute period in the outbreak is just the beginning, not the end [and] we believe the path to re-opening the economy is going to be long”.
That lines up with Sunday’s warning from Neel Kashkari, who told CBS’s “Face the Nation” that Americans should prepare for an 18-month period of rolling starts and stops. “Different parts of the economy turning back on, turning back off again”, he told Margaret Brennan, describing his vision of the future. “This could be a long, hard road we have ahead of us”.
Morgan Stanley’s Harrison says almost precisely the same thing.
“It will require turning on and off various forms of social distancing and will only come to an end when vaccines are available, in the spring of 2021 at the earliest”, he remarks, on the way to predicting that once we see a sustained decline in new cases in coastal areas, there will be a “second peak” in other regions. Ultimately, America’s “time to peak” will be four times that of China and twice that of Italy.
While Harrison says a tentative reopening of the economy is possible by “mid-to-late May”, investors should not harbor any misconceptions about the situation. This will not, the bank says, be any semblance of “normal”.
There are four conditions that have to be met before the US can get back to work in earnest, Harrison says. Those four conditions are (from the note):
- adequate surge capacity in hospitals,
- broad public health infrastructure to support testing for disease surveillance,
- robust contact tracing to curtail “hot spots”, and
- widespread availability of serology testing (blood tests to see who is already immune)
Although this process will begin by mid-summer, Morgan Stanley says that “unfortunately”, many workers won’t be able to go back to their jobs “until a vaccine is abundantly available as social distancing cannot be fully relaxed until we have herd immunity (~60% of people vaccinated) “.
If you’re starting to get the impression that this is going to be a very tedious process, that would be the correct interpretation.
(Morgan Stanley)
Harrison emphasizes the importance of government investment in a vaccine program and says testing antivirals and antibody therapies can help reduce the severity of cases in the meantime. He also says the market may begin to look past the dour economic data eventually, where that means once it becomes apparent a vaccine is “on the horizon”.
And yet, the bottom line is that the projections outlined in the visual (and discussed at length by Harrison) have prompted the bank’s economists “to revise their US forecast to a return to pre-COVID-19 levels not until 4Q21”.
Now that, folks, is sobering.
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FWIW, I think Morgan’s timeline is reasonable but their conclusions relative to earnings and GDP are not. Return to work this summer will happen, and I expect any bias exerted in most jurisdictions will be pro-work rather than pro-safety. A second wave this fall will be a media snoozer after the first few headlines – with a smaller peak, hospital surge capacity in place, a few treatment options, and comforting news flow about vaccinations by then. “Snoozer” matters, as it helps regulate consumer and business response. I expect the second wave is simply managed to best effort by the medical community and mostly overlooked by everyone else. Re-lockdowns will be reluctantly imposed and widely pushed back to the limits of local hospital capacity.
Basically, Morgan’s timeline – but by August, the “economy vs safety” debate gets consistently called the other direction. Businesses will be busy in a land-grab for the post-Covid economy and sorting out who the survivors are and who replaces them. That one will be a sprint race, not a marathon, and it won’t pause for anything.
I don’t know Uptown. I mean jurisdictions exerting a bias against their own self interest. You can only cover your tracks so well. Risky business to get into.
We’ll see.
-TB