Financial markets are factoring in the approval of a Covid-19 vaccine like it’s a certainty. The only question many investors are pondering is when, not if, it becomes widely available.
In a webcast on Monday with David Rosenberg of Rosenberg Research, DoubleLine CEO Jeffrey Gundlach cast serious doubt upon this mainstream Wall Street assumption. He noted that modern science has never developed a vaccine for any previous coronavirus. Many flu shots, he added, have 50% failure rates.
When one also adds to the equation surveys finding that only 50% of Americans say they will get a Covid vaccine, the picture changes dramatically. This could leave 75% of the public still “vulnerable,” Gundlach said. All the market’s talk that a vaccine would solve most of our current woes is a “pipe dream,” in his view.
Rosenberg, the former chief economist for North America at Merrill Lynch, observed that the U.S. economy remains extremely fragile. Most of the massive stimulus package was distributed in the second quarter, he nonetheless estimated that third-quarter GDP would have climbed about 6%, not 33%, without Washington’s largesse.
“The market is behaving like Pavlov’s dog” as it waits for another stimulus package, Rosenberg declared. That’s one reason why either “a blue wave” or a “red wave' would be preferable to the divided government election scenario that Gundlach predicted. As of Wednesday, election results were leaning towards either divided government of a red ripple, leading to more Washington gridlock.
While many advisors and their affluent clients are bracing for substantial income and capital gains tax hikes, Rosenberg said the economy is still way too weak to absorb them. Tax increases are coming, he said, but not for three or four years.
A variety of actors of the U.S. economy, notably many renters and landlords, are hanging on by a thread, Rosenberg argued. If there is no stimulus between now and January, he implied that thread could rip apart, triggering a full-blown eviction crisis during a period when the pandemic was expected to spike.
In addition to rent forgiveness, landlords may require mortgage forbearance, Rosenberg said. At some point, this chain of events probably would spill over into the banking sector.
Conventional wisdom maintains that the U.S. economy will not enter a second lockdown. “That’s what [United Kingdom Prime Minister] Boris Johnson said," Rosenberg said.
Whatever happens with the virus, most Americans are behaving “more safely,” he continued. From a public health standpoint, that’s a good thing, but it's restraining economic activity. If there is a double-dip recession in the first quarter, the stock market “is down 20%,” he predicted.