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Tracking a Vaccine

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With the number of COVID-19 cases nearing 5.5 million worldwide, Brian Belski, Chief Investment Strategist at BMO Capital Markets, on Tuesday moderated a roundtable discussion with BMO experts to discuss the latest developments in the outbreak. Joining him on the call were Michael Gregory, Deputy Chief Economist at BMO Capital Markets and George Farmer, Biotechnology Analyst, BMO Capital Markets. Special guest Dr. John Whyte, Chief Medical Officer of WebMD, joined the call to discuss the week’s most recent medical developments.

BMO COVID-19 Insights podcast is live on all major channels including AppleGoogle and Spotify.

Isolation Fatigue Weighs

Governments in Canada and the United States are slowly lifting restrictions after months of lockdown, but the degree to which the infection curve has been flattened in both countries will likely be tested in coming weeks as government and healthcare authorities watch for the impact of quarantine and isolation fatigue on both sides of the border, Dr. Whyte said.

In the United States, Americans flocked to beaches and public parks over the Memorial Day weekend, largely defying social and physical distancing guidelines and drawing rebukes from the governors of California and New York; In Canada, the mayor of Toronto publicly chastised youth after mass congregations in one of the city’s largest parks.

“We are going to see, a week to ten days from now, what the impact was of this past weekend,” Dr. Whyte said. “You always want to keep in mind that we’re always about 10-14 days behind given the incubation period of Coronavirus.”

U.S. Approaching 100,000

Worldwide, there have been more than 5.5 million cases of COVID-19 infection, resulting in nearly 347,000 deaths, with the United States, Brazil, Russia, Spain, the UK and Italy leading in terms of the number of cases. Of concern, said Dr. Whyte, was that a week ago Brazil would not have even been in the top five.

In Canada there have been some 86,000 cases, resulting in over 6,500 deaths, placing it in 13th place globally in terms of the number of cases. In the United States the number of cases is now more than 1.6 million, and the country is expected to have reported over 100,000 deaths by the end of the week.

Summer, Surfaces Respite

The coming months are likely to provide some respite from the outbreak, Dr. Whyte said, as respiratory viruses do not fare well under hot and humid conditions. Also encouraging for the summer months is data showing that the risk of infection indoors is more than 10 times what it is in open-air environments, providing actionable parameters for how to feel safe as economies reopen, and remain open. 

Even as the race continues to develop a vaccine and treatments for the disease, new research published by the CDC last week showed that the virus does not spread easily on surfaces.

“This new guidance, I hope, brings some relief, because the virus is a respiratory virus spreading from person to person, typically through droplets,” said Dr. Whyte. “That is why facial covering is playing an important role, but just touching a door knob, touching a piece of paper, is not likely going to give you Coronavirus and that is very important to keep in mind as we reopen.”

As economies reopen, public health authorities will need to keep close tabs on total case numbers, and on rates of increase or decrease. Testing needs to be ramped up to as much as two percent of the population, Dr. Whyte said, citing recommendations from U.S. health authorities.

“We need the number of positive tests to really be less than 10 percent,” he said. “We don’t want to be just testing those people who are the most sick.”

Vaccine News

BMO Capital Markets Biotechnology Analyst George Farmer said there is encouraging news on the vaccine front, pointing at the results of a Phase I trial by the company Moderna.

Last week, Moderna announced that 45 of the 45 participants in the trial developed binding antibodies in response to the vaccine, and eight out of eight participants analyzed also developed neutralizing antibodies.

The news saw stock in the company soar and Moderna went on to raise $1.3 billion in cash to go toward building manufacturing facilities when, and if, a vaccine goes to production, according to management.

“The company insisted they needed to build up cash reserves in order to meet the manufacturing capacity demand that they anticipate once the vaccine ultimately wins potential FDA approval,” said Farmer, who started research coverage of the company on April 30, “with a very bullish outperform rating on the stock because we really do believe in this unique vaccine.”

There has been some concern about how comprehensive Moderna’s current data set is, but Farmer said the NIAID will likely publish more data gathered on the rest of its 45 test patients in coming weeks.

A vaccine may get to market by next year, he said, and could be available to frontline workers even sooner, before full FDA approval is received.

There are other successful stories emerging in vaccine development, including one vaccine trial that showed that inoculated monkeys developed antibodies capable of fighting off SARS-CoV-2 infection. Farmer noted that, as DNA and RNA type vaccines are proven to be feasible, FDA approval of one of these vaccines is possible in the future.

Tracking the Recovery

Turning to the economy, Michael Gregory, Deputy Chief Economist for BMO Capital Markets, said the shape of economic recovery will depend in large part on how quickly jobs rebound from months of losses due to the shutdown.

He said that in the last four weeks alone, more than 10 million Americans have applied for unemployment insurance, underscoring the extent to which job losses far exceeded the predictions of earlier economic modelling.

“During the past couple weeks, all states and provinces have begun to reopen, albeit with differing degrees of caution. This should ensure that June and July are much stronger for both the U.S. and Canadian economies,” Gregory said. “However, the vigor of these recoveries will ultimately be dictated by how many of the laid off and furloughed workers get their jobs back and, of course, whether or not the coronavirus comes back. These are, in fact, the darkest clouds hanging over the economic outlook.”

The economic data in both Canada and the United States remains dire.

“Marking the pandemic’s economic nadir,” Gregory said, “nearly all April indicators are looking, or are going to look, horrendous.”

He said U.S. durable goods orders on Thursday are expected to be down 20 percent, and personal spending on Friday is expected to be down 13 percent, both registering record reductions.

Gregory expects May to be another month of recession, but not nearly as bad as April.

Since last week’s call, Gregory said, in Canada, retail sales volumes for March were reported down 8.2 percent, with the wholesale sector down 2.8 percent.

Gregory predicted that Friday’s release of Canadian GDP data for March would show a contraction of somewhere between six- and seven percent, with the entire first quarter contracting an annualized seven percent.

Biggest Surprises

Asked about the biggest surprises to the upside since the pandemic-induced recession took hold, Gregory referenced “shock and awe”-inspiring fiscal and monetary policies on both sides of the border.

“They did things that we've never seen before,” said Gregory, “Particularly the central banks, like the Bank of Canada using QE for the first time. During the global financial crisis, they were loath to do it.”

While some observers have expressed concerns about inflationary consequences of Bank of Canada policy responses, Gregory said policymakers had no choice. Bank Governor Stephen Poloz recently described the damage done by the pandemic as a “giant deflationary crater” in the middle of the economy that would only be offset with corresponding inflationary policies.

“We're still learning how deep the crater is,” Gregory said, “and how long it will take to climb out of it.”

Stock Market Recovery

BMO Capital Markets Chief Investment Strategist Brian Belski noted that U.S. and Canadian markets have rebounded by almost 40 percent since hitting lows in March, recovering to the near-record levels enjoyed in February, prior to COVID-19, and settling into a trading range in May.

“We're approaching those near all-time highs that we saw in February,” he said, noting the recovery has boosted small-, mid-cap and value stocks.

As the market settled into a range, he said some investors have become concerned about whether current levels are sustainable.

We would tell people this, that the more you're trying to time the market, I think that's going to be a real difficult strategy,” he said. “From a longer-term perspective, we still believe that the U.S. market is in a big 20-year bull market.”

He pointed to some strong investment themes surfacing around COVID, especially those related to the new social distancing norms arising from the pandemic.

“And there are other things too, especially regarding technology in the United States, energy in Canada, industrials in both countries, and we actually think the broader theme is only going to be solidified due to COVID over the next three to five years.”

North American markets, he said, would continue to lead global equities over the next 12 to 18 months, drawing investment away from emerging markets especially.


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Brian Belski Chief Investment Strategist
Michael Gregory, CFA Deputy Chief Economist and Managing Director

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