Investors bet on tests and treatments to revive the US economy

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(Reuters) – Investors place hopes for reopening of the US economy on the potential for greater availability of tests for COVID-19 cases and on drug trials to treat the deadly disease, but said, until there is concrete progress in these areas, further stock market gains may be limited.

The New York Stock Exchange (NYSE) is seen in the lower Manhattan financial district during the epidemic of coronavirus disease (COVID-19) in New York, United States, on April 26, 2020. REUTERS / Jeenah Moon

Much of the S&P 500 .SPX’s nearly 27% advance above its March 23 low is due to the hope that massive US fiscal and monetary support would cushion the economic blow to home orders designed to contain the coronavirus pandemic.

But recently the index reacted to reports on the trials and in particular to Gilead Science (GILD.O) remdesivir an experimental treatment for COVID-19, the respiratory disease caused by the new coronavirus. Remdesivir, which previously failed as a treatment for Ebola, is designed to prevent a virus from replicating and overwhelming a patient’s immune system.

This volatility highlights the impatience of investors to know when federal and state authorities could start easing home orders and getting people back to work.

So far, there is no approved treatment or vaccine for the disease that has killed more than 190,000 people worldwide, according to a Reuters count. The disease has infected more than 928,000 people and killed more than 52,000 in the United States alone, according to the latest data from the United States Centers for Disease Control and Prevention.

“Any sentiment around therapy really moves markets because it shapes expectations of a return to normal that would be necessary to start an economic recovery,” said Shawn Cruz, director of merchant strategy at TD Ameritrade in Jersey City, New Jersey.

The S&P added to earnings on Friday after lead investigator in a US government remdesivir trial told Reuters that the trial could yield results as early as mid-May.

But on Thursday, the index temporarily cut its earnings after a report on Gilead’s drug failed in a trial that the drug maker himself found inconclusive because the study ended early. On April 17, investors were encouraged after the STAT medical news report reported rapid improvements in COVID-19 patients in a hospital studying the drug.

While Michael O’Rourke, chief market strategist at JonesTrading in Stamford, Connecticut is encouraged by the number of researchers working on coronavirus treatments, he is cautious about the short-term outlook for the stock market.

“The only thing that pushes us above this range in a sustainable way is a therapeutic solution or a vaccine that allows us to return to pre-crisis activity levels,” he said. “I think we will have a medical solution. The big question is the deadline. The longer it takes, the harder it becomes (for the economy) to go back and bounce back. “

Although there are more than 70 vaccines under development for the coronavirus, Steven Slaughter of Manulife Investment Management, which manages a dedicated healthcare fund of about $ 3.5 billion, said it s The expectation is that development of a successful vaccine will take at least 12-18 months compared to the average time to develop a vaccine. 5-7 years old.

It could then take years before pharmaceutical companies produce enough to vaccinate the world’s population.

But Slaughter is optimistic, at least some treatment will be validated in tests over the next three to six months, and said it would give officials “more leeway to restart the economy.”

He said there are four main types of treatments tested by companies such as Gilead, Takeda Pharmaceutical (4502.T), Regeneron Pharmaceuticals (REGN.O) and Alexion Pharmaceuticals (ALXN.O) who all have a certain promise.

Although the treatments do not necessarily slow the transmission of the disease, they could help doctors control the severity of the infections, thus relieving pressure on the intensive care units (ICUs).

“If we can take a patient who would otherwise have spent 2-3 weeks in an intensive care bed out of that intensive care bed in 2-3 days, which has a huge beneficial impact on our ability to manage epidemics or manage a potential second wave of infections, “he said.

In the meantime, officials should at least seek greater availability of tests that can detect viral infections and ways to track and trace people who may have been exposed, before easing the blockages, some strategists said.

“What will be more critical will be the testing capacity and the effectiveness of tracking and tracing programs,” said Salman Ahmed, chief investment strategist at Lombard Odier Investment Management. Test developers include Abbott Laboratories (ABT.N) and Roche Holding (ROG.S).

With a large chunk of the U.S. population invited to stay at home and many businesses having been on hiatus since mid-March, investors have already seen dismal earnings and a massive U.S. economic decline in the second quarter.

But recent S&P gains seem to imply a huge improvement in the economy in the third quarter, according to Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.

“There will be a vaccine and treatments for COVID-19, but people are underestimating the time it takes to get to market,” said Tuz. “If there are disappointments in three areas – the vaccine, the treatment and the tests – we could come back to some on the market.”

Report by Sinéad Carew in New York; Additional reports by Sujata Rao-Coverly and Tommy Reggiori Wilkes in London; Editing by Alden Bentley

Our standards:Principles of the Thomson Reuters Trust.

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