Dow Jones Plunges Because We May Never Have A Coronavirus Vaccine

April 20, 2020 11:38 AM UTC
The US stock market snapped back into a decline after British scientists warned discovering a coronavirus vaccine is a "long shot."
  • The Dow Jones Industrial Average (DJIA) suffered a sharp drop on Monday.
  • British scientists leading the country’s coronavirus vaccine program admit there’s no guarantee of a drug.
  • Analysts at Citi warn the stock market hasn’t priced in a second wave of the virus and extended lockdowns.

The recent stock market rally may be starting to roll over. The Dow Jones Industrial Average (DJIA) suffered a sharp decline on Monday as traders braced for a longer coronavirus recovery.

Hopes for a quick return to normal were clouded this weekend by British scientists. Many warned that we might never have a vaccine for the novel coronavirus. The UK government’s chief scientific advisor, Sir Patrick Vallance said on Sunday:

[A vaccine] will take time, and we should be clear it is not a certainty.

Sarah Gilbert, who is leading the vaccine program at the University of Oxford, took a slightly more optimistic stance, but still warned that a vaccine is no guarantee.

The prospects are very good, but it is clearly not completely certain.

Analysts at Citi warn that this outcome, and the possibility of a second virus wave, is not priced into the current market.

Dow slumps as US oil hits $11

The Dow Jones Industrial Average (DJIA) fell dramatically at the opening bell. Stocks were dragged lower by a cataclysmic 37% fall in the oil price. West Texas Intermediate futures fell as low as $10.77 per barrel in a move that analysts called “quite dire.”

By 9:38 am ET, the Dow had lost 436.67 points or 1.8% to slip to 23,805.82.

The Dow Jones suffered a sharp drop when trading opened on Monday. | Source: Yahoo Finance

The S&P 500 dropped 1.22%, while the Nasdaq declined by 0.62%.

Coronavirus vaccine is a “long shot”

Coronavirus vaccine trials have begun in earnest around the world. At least 70 potential vaccines are in the works but could take 12-18 months to materialize. Vallance warned, however, they are all longshots.

All new vaccines that come into development are long shots; only some end up being successful, and the whole process requires experimentation.

Worse, coronaviruses are notoriously tricky to vaccinate against. In fact, we’ve never had a consistent, successful vaccine for this type of virus before. If a drug is discovered, it may only provide immunity for a short period. Sir Jeremy Farrar, of the UK Government’s Scientific Advisory Group for Emergencies (Sage) cited another problem.

And then you have to manufacture that in billions of doses to administer them to the world.

What happens to the stock market if there’s no vaccine?

Even the most cautious investment models, like Morgan Stanley’s timeline, include robust vaccines. Absent a vaccine, these models will need to be completely rewired.

Morgan Stanley’s cautious coronavirus timeline includes provisions for a vaccine. Source: Morgan Stanley

David Nabarro, a professor of global health at Imperial College London, admitted that we’d simply have to adapt as a society.

For the foreseeable future, we are going to have to find ways to go about our lives with this virus as a constant threat.

As many have pointed out, that means bracing for a second wave of the virus. This will likely include long-term social distancing measures and potentially rolling lockdowns. This reality is not priced into the market, according to Citi analysts.

Dow Jones is not pricing in a second wave

The CDC has already warned that there will “definitely” be a second wave of the virus. David Bailin at Citi said the stock market is currently ignoring that likelihood.

In the event that we have a very significant second wave of disease in the United States that cause a further shutdown of the economy … that clearly is not priced into the market… The other thing that may not be priced into the market is the fact that this virus may take another 18 to 24 months to really cycle through the globe, and ultimately have a vaccine.

Nowhere is this more obvious than the FANGMAN market capitalisation, which tracks Facebook, Amazon, Netflix, Google, Microsoft, Apple, and Nvidia. The market cap is positive for the year and down only 7% from all-time highs.

Earnings season set to be the worst since 2009

Adding more pressure to the Dow this week is a raft of earnings reports. IBM, Coca-Cola, Netflix, Boeing, Visa, Intel, Amazon, Tesla, and Facebook are among the big names reporting this week. Citi is expecting a 40% drop in profit across the board.

In the second quarter we expect earnings to literally fall by 40% or more across the board, and we don’t expect earnings in the United States to get back to their first quarter levels for nine quarters from now.

Worse, they don’t see earnings returning to pre-coronavirus levels for more than two years.

Samburaj Das edited this article for CCN.com. If you see a breach of our Code of Ethics or find a factual, spelling, or grammar error, please contact us.

Last modified: April 20, 2020 1:41 PM UTC

@_ben_brown

Ben is a journalist with a decade of experience covering financial markets. Based in London, UK, his writing has appeared in The Huffington Post and he was Chief Editor at Block Explorer, the world's longest-running source of Blockchain data. Reach him at benjamin-brown.uk, Twitter at _Ben_Brown or MuckRack. Email ben @ benjamin-brown.uk.