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U.S. Lab’s Dire Warning Puts Surging Stock Market at Risk

Last Updated September 23, 2020 2:08 PM
Joseph Young
Last Updated September 23, 2020 2:08 PM
  • Testing capacity is nearly impossible to increase as autumn approaches, the biggest laboratory in the U.S. says.
  • Flu season could make the pandemic harder to get under control.
  • Vaccine progress may not be enough to sustain the stock market recovery in the short-term.

From Moderna in the U.S. to Oxford in the U.K ., the race for a vaccine is speeding up. The stock market has rallied repeatedly in response to favorable trial results. Unfortunately, a new threat has begun to emerge.

While testing has exploded since the onset of the pandemic, the biggest commercial laboratory in the U.S. warns capacity is reaching its limits.

According to James Davis, the executive vice president of general diagnostics at Quest Diagnostics, it will be virtually impossible for U.S. labs to increase testing capacity  ahead of an expected demand spike when flu season arrives  in the fall.

And if lackluster testing  cripples the country’s ability to respond to the pandemic, it could affect the stock market.

stock market, S&P 500
Vaccine progress has helped drive stocks higher. What happens when testing capacity hits its limit? | Source: Yahoo Finance 

A Vaccine May Be a Long-Term Solution, But Testing Is a Problem Right Now

A common theme among countries that have successfully gotten their local outbreaks under control is efficient testing and tracing. 

South Korea, Taiwan, and New Zealand meticulously traced infected individuals to stop the virus from spreading.  All three countries have subsequently opened their economies while the U.S. recovery hesitates.

The resumption of economic activity was a significant catalyst in the U.S. stock market’s second-quarter rally. After weeks of lockdown, many states allowed businesses to open with safety precautions in place.

If the U.S. cannot effectively meet the demand for testing, it could impact where the economy goes from here.  Especially since some regions have already begun to shut down  for a second time.

stock market, testing capacity
Unless health researchers achieve a breakthrough, the autumn testing crunch could be the tipping point for equities. | Source: REUTERS/Andrew Kelly

Quest Diagnostics’ Davis says demand already exceeds supply. And it could double heading into autumn and winter.

Davis said in an interview with Financial Times:

There is no way that PCR capacity is going to double in the next three months… Right now, with demand greater than supply, we should focus on the people that are symptomatic.

With this headwind, some scientists fear a second full-scale lockdown is inevitable . Waksman Institute of Microbiology laboratory director Richard Ebright told TheStreet:

A second U.S. lockdown has become almost inevitable.

“Inevitable” though it may be, it doesn’t look like an outcome the stock market has priced in.

“Overvalued” Stock Market Is Already Vulnerable – And That’s According to the Bulls!

Strategists have already started to sound the alarm on the “overvalued” stock market. 

Ed Yardeni, a long-time bull, concedes stocks are not cheap, especially since geopolitical risks are rising.

Intensifying tensions between the U.S. and China could potentially cause a 30% market plunge,  Yardeni told CNBC:

We’re seeing major states reversing the reopenings of their economies. So, all this good news we’ve gotten in May and June on the economic front, including even the unemployment numbers, is vulnerable.

On top of all that we’ve got an increasingly and potentially dangerous conflict between the United States and China escalating again.

After months of unbridled progress, the stock market is burdened with heaps of downside risk.

Unless health researchers achieve a breakthrough, the autumn testing crunch could be the tipping point.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the stocks mentioned.