The S&P 500 fell 1.3 percent last week, ending a two-week winning streak.
Stocks saw big declines early last week amid plunging oil prices but recovered partially in the second half of the week on hopes that the US and other economies will be reopening in the near future as tests for COVID-19 become more widely available and drugs are developed to treat the disease.
“Any sentiment around a therapy is really moving markets because it shapes expectations for a return to normalcy which would be needed to get an economic recovery started,” said Shawn Cruz, manager of trader strategy at TD Ameritrade.
However, that sentiment suffered a setback on Thursday after Gilead Science’s remdesivir reportedly failed a trial.
Meanwhile, others are warning that a vaccine could take some time to become available.
“We haven’t got a hugely good track record with vaccines for this particular virus, coronavirus, the family of viruses,” said Professor Gina Radford, former deputy chief medical officer for England. “I think those who are very used to the process of developing vaccines are saying they are not anticipating it being available until well into next year.”
That would be problematic for a global economy that is widely expected to suffer its steepest contraction on record this year.
“We are likely to see a deeper contraction in 2020 than during the global financial crisis,” said Janet Henry, global chief economist at HSBC.
“The global economy is collapsing at a pace not seen since World War Two,” said Michael Hanson, senior global economist at JPMorgan. “Staggered re-openings of economies until a vaccine is widely available imply more of a U- rather than a V-shaped recovery for the global economy.”
Still, others think that the positive response of policy-makers to the COVID-19 pandemic may be enough to turn markets around.
“On March 23, we made a low exactly on the same day that the Federal Reserve introduced what I call ‘QE4ever.’ The Fed announced that they were going to purchase bonds for the foreseeable future,” Yardeni Research president Edward Yardeni told CNBC on Friday.
Having lowered his year-end target for the S&P 500 to 2,900 early last month, Yardeni is now looking forward to a rebound.
“Sometime next year, maybe by the end of next year, we’ll be moving toward 3,500,” he said.
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