2020-11-09 23:48:00 | Even with a vaccine, U.S. economy faces long path toward recovery



Story by: Leticia Miranda NBC News

The stock market surged on Monday after promising news that Pfizer’s Covid-19 vaccine proved 90 percent effective in late-stage trials, signaling that some relief is on the horizon for the country’s pandemic-stricken economy. But as investors sell off tech stocks for investments in beleaguered leisure or hospitality companies, market strategists and analysts warn that the economy still faces a long path toward recovery.

“The news is encouraging, but it’s important to have a little bit of humility,” said Ryan Sweet, a senior director of economic research with Moody’s Analytics. “I think markets are looking a year ahead from now if [the vaccine] is widely distributed, the economy will be healing more quickly.”

Despite news of a promising vaccine, the U.S. is still on track for a slow and grueling economic recovery, economists said. Moody’s still forecasts that the country will not fully recover the 22 million jobs lost to the pandemic until 2024. The economy is still on course to contract by about 2.9 percent this year, according to estimates from Deutsche Bank. Meanwhile, about 13 million consumers are facing a financial cliff in December when federal pandemic unemployment benefits expire.

“What we’re seeing [in Monday’s stock market rally] is a hope that a vaccine will return life to normal enough to favor those industries that have been heavily sold off,” said Paul Christopher, head of global market strategy with the Wells Fargo Investment Institute. “There is a tendency for markets to run with expectations, and those expectations are not met — and the same is true for the vaccine.”

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An end to the economic turmoil from the virus depends on the delicate distribution of the vaccine, which comes with numerous risks and challenges, Pfizer told NBC News. For instance, the vaccine must be stored at below 94 degrees Fahrenheit, which requires specially designed refrigerators and vials.

“There is too much risk of extrapolation here,” said Christopher. “We prefer investors not drop all their chips in a market that might show some disappointment in the coming weeks and months.”

While the country is not out of the woods, the vaccine does signal a faster recovery than had previously been predicted by analysts, said Binky Chadha, chief U.S. equity and global strategist at Deutsche Bank Securities. That bodes well for industries that depend on in-person services such as leisure and hospitality industries, which lost 7.7 million jobs at the height of the pandemic. Retail lost about 1.9 million jobs to temporary or permanent layoffs at the beginning of the pandemic.

“Our view is that the cyclical sector — financials, construction, retail — should fare well and that is simply because growth has been stronger than expected,” said Chadha. “The vaccine will help with that.”

As jobs rebound, consumers are likely to follow as people go back to dining out and shopping at malls, said Michael Arone, managing director of State Street Global Advisors. About half of the consumers surveyed by Bain & Co. in October said they had not been to a mall since the beginning of the pandemic. One-third of them said they are not comfortable shopping in malls or stores and most are not comfortable with air travel.

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“As more jobs are added, consumer confidence increases and consumer spending increases,” Arone said. “That will be important to follow through on the economy.”

However, even when the economy does start to shows signs of recovery, it will still be weaker than it was before the pandemic.

“[The vaccine] is a giant first step in developing a health solution to what is a health problem,” Arone said. “What is ultimately going to be the most important is the follow-through on the market and vaccine and consumer behavior. Those are key milestones to keep an eye on moving forward.”



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Source References: NBC News

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