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.
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.
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.
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.