- Dr. Anthony Fauci potentially sees the U.S. reaching 100,000 new infections per day.
- The U.S. stock market is at risk of a pullback as new cases make reopening the economy more difficult.
- Analysts foresee the momentum of stocks slowing down in the near-term.
Dr Anthony Fauci believes the U.S. could reach 100,000 cases per day based on recent data. The continuous increase in new infections might cause the stock market to come to a screeching halt.
Emphasizing that the U.S. is not in control over the pandemic, Fauci said:
I can’t make an accurate prediction, but it is going to be very disturbing, I will guarantee you that. Because when you have an outbreak in one part of the country even though in other parts of the country they’re doing well, they are vulnerable.
The U.S. stock market increased by 3.13% since June 29, triggered by the emergence of new economic data. But, analysts are now becoming more cautious.
U.S. Stock Market Priced In a Smooth Reopening of Economy, And It’s Now at Risk
Speaking to CNBC, The Sevens Report founder Tom Essaye said four factors catalyzed the recent stock market rally.
The main factors are stimulus, a decline in new cases, economic reopenings throughout the U.S., and optimism towards a vaccine.
But, Essaye noted that only one out of the four factors had materialized since. He said:
A combination of 1) Stimulus, 2) Positive trends in the virus, 3) Economic reopenings and 4) Hopes for a vaccine drove stocks higher in Q2. As we begin Q3, only one of those tailwinds is currently in place: Stimulus.
Many states have pushed back on reopening their respective economies in recent weeks. Fauci’s warning of up to 100,000 new infections per day adds even more pressure to the stock market.
TS Lombard economist Charles Dumas said this week that economic growth would be slower despite the easing of lockdowns. If the U.S. begins to implement new restrictive measures, the negative economic impact can be far stronger.
Even with the easing of lockdowns in advanced economies, growth will be slower.
Investors in the stock market are seemingly relying on the liquidity injection by the Federal Reserve and new stimulus.
Senate Majority Leader Mitch McConnel said the Senate is considering a second stimulus package in July. In the near-term, strategists anticipate the stimulus to sustain the momentum of the stock market.
What are some variables that can stop a correction of stocks?
The primary source of uncertainty around stocks among investors is the pandemic. The number of daily infections soared above 40,000, placing hospitals in key hotspots at risk.
Successful measures to lower new cases and significant progress in the production of a vaccine could offset many risks.
But, scientists remain skeptical about the viability of a vaccine by the year’s end.
Fauci went as far as to say that there is no guarantee there will ever be an effective vaccine to combat the virus. He said:
There is no guarantee … we’ll have a safe and effective vaccine.
Newfound concerns around vaccines and increasing infections place might further intensify the fear of investors in the stock market.