The World Health Organization (WHO) believes “the worst is yet to come” in the pandemic. The warning leaves the U.S. stock market vulnerable to a severe correction.
Tedros Adhanom Ghebreyesus, WHO’s director-general, said:
The worst is yet to come. I’m sorry to say that, but with this kind of environment and condition, we fear the worst. And that’s why we have to bring our acts together and fight this dangerous virus together.
A prolonged lockdown might cause jobless claims to rise and supply chain disruptions, causing a stock market slump.
A common theme among countries that smoothly reopened their economies is a peak in virus cases.
New Zealand, South Korea, and Taiwan are among the few countries which recorded a clear drop in new infections . The three countries have been able to reignite their workforce, reopening factories, restaurants, cafes, and others.
The struggle of the U.S. to see a clear peak in the number of virus cases sparks fear in two major areas. First, it will make it extremely challenging to reopen the economy with a significant increase in infections. Second, it might intensify the uncertainty of investors in the U.S. stock market.
Morgan Stanley executive Lina Shalett previously said that new hospitalizations are an important metric for stocks in the near-term.
The bank’s Wealth Management Division CIO said that low hospitalizations would be crucial in terms of both economic recovery and human psychology perspective.
In the last several weeks, laboratory-confirmed hospitalizations declined. However, the resurgence of new virus cases could trigger an increase in hospitalizations in the short-term.
If the U.S. stock market has priced in a seamless reopening of the U.S. economy, stocks face a brutal correction in the third quarter of 2020.
According to the Texas Medical Center, intensive-care unit wards in Houston hit 95% capacity on June 29. Patients with the virus made up for 34% of the capacity, up 3% in less than 24 hours.
The Texas Medical Center said the number of virus patients admitted to the hospital is growing by 3.5% a day on average.
The U.S. stock market increased by 2.3% on June 29, despite the warning from the CDC and concerning virus-related data.
High liquidity in the U.S. market propelled by the Federal Reserve has kept investor confidence high in recent months.
Whether relaxed financial conditions in the U.S. are enough to sustain the momentum of stocks remain to be seen.