Markets underestimate potential for Covid-19 therapies to support re-opening US economy

The road to re-opening America's economy will be "long" and the final destination will only be reached when a vaccine for the Covid-19 coronavirus is found, analysts at Morgan Stanley warned.

Nonetheless, in a report sent to clients over the weekend, analyst Matthew Harrison also said he believed "the market is underestimating the impact the drug pipeline can have on the public policy response to the virus" - with potentially significant implications for financial markets.

A vaccine would only be ready by the spring of 2021 - at the earliest - but promising antivirals and antibody therapies were already in the pipeline and data should start arriving in April and on through the summer.

At least some of those drugs should be able to help turn severe infections into milder ones, he said.

That might reduce the potential strain on hospitals and allow public health officials to support a broader re-opening, even before a vaccine was widely available.

Indeed, adequate "surge" capacity in hospital was one of four conditions that needed to be met before the US could "go back to work" fully, alongside sufficient infrastructure in place for testing and surveillance of the disease, robust contract tracing and widely available serology testing so those able to return to work could be identified.

Harrison expected those conditions to be met in sucessive waves starting in mid-summer, although the slow uptake of social distancing and lack of robust testing meant that the US was unlikely to start re-opening before mid to late May at the earliest.

"Thus, with therapeutics available in the near term and a vaccine on the horizon, the market could start to “look through” the slow US recovery and back to pricing in future US growth."