The US financial system will get worse earlier than it will get higher: Ned Davis Analysis

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We still haven’t seen “the storm before the calm”.

So says Alejandra Grindal, senior international economist at Ned Davis Research, despite record highs in the market that were revived Tuesday by positive announcements about a Covid-19 vaccine.

The UK began rolling out Pfizer and BioNTech’s vaccine to its citizens on Tuesday, just as the US Food and Drug Administration said the vaccine had raised no specific safety concerns.

Still, “it gets worse” before it gets better, Grindal told CNBC’s “Trading Nation” on Tuesday.

“We could see that the situation worsened somewhat in the first quarter, especially if the virus continued to worsen, the lockdowns lasted longer and we didn’t renew that incentive,” Congress said in March.

While a US vaccine launch in the second quarter of 2021 would likely trigger a major turnaround, the key will come through in the next three months, Grindal said.

“The mass use of any type of vaccine early in the second quarter or during the second quarter of 2021 … could rebound not only US economic activity but global economic activity quite sharply due to pent-up demand, especially for many services, as well as pent-up savings to meet that demand, “she said.

Certain international players are already leading the charges, the economist said.

The worldwide new export orders were just entering their third consecutive month of expansion. China’s purchasing managers’ index rose to its highest level since 2010, and the US PMI surpassed its 2015 high to hit the highest level in the world, according to Grindal’s latest reading.

“When you look at the world economy as a whole, China plays a pretty big role. It will likely be the only, at least important, contribution to global growth this year,” she said. “They focus a little less on services that [have] was more sensitive to Covid and especially in manufacturing and we saw a pretty strong recovery. “

Europe, the UK and Japan, on the other hand, are still vulnerable to “really strong double-dip recession risk,” she added.

The “million dollar question” some may have is how US policy towards China might change when President-elect Joe Biden takes office, but Grindal did not expect a major overhaul.

“Investors will be wrong if they feel that under a Biden government the US-China trade war will be over. That is very unlikely,” Grindal said. “One of the major developments we’ve had over the past four years is this general view among both Democrats and Republicans that China has engaged in unfair trading practices.”

Biden said last week that he would not immediately seek to remove the Trump administration’s tariffs on China and would instead focus on “development”[ing] a coherent strategy with US allies.

“He will likely remove them, perhaps as leverage, perhaps to allow US companies to get involved in Chinese ventures a little easier, or perhaps in exchange for some kind of human rights advantage,” Grindal said.

“The biggest change you would see between Biden and the Trump administration is that Biden will be a lot less abrupt. So I don’t think he will be tweeting overnight and saying, ‘We’re going to have a big surge in tariffs tomorrow, “she said. “From that perspective, I think this is relatively market-friendly as, as we saw in 2018, a lot of these abrupt tariffs have caused a lot of turmoil in the market.”

Ned Davis Research continues to recommend an overweight position in equities, with a bias towards emerging markets on the international front.

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