Stock market bulls hoping that a coronavirus vaccine will extend the S&P 500 index’s 51 per cent recovery from the pandemic lows are set for disappointment, according to Societe Generale SA.

The rally has priced in the most optimistic scenarios for the potential roll out of a vaccine and markets are now vulnerable to setbacks, according to Solomon Tadesse, the head of North American equity quant research. If US stocks follow the trajectory of past bear markets, that implies losses of about 15 per cent by the end of this year, he said.

“We’ve reached the ceiling, even with all those optimistic scenarios,” Tadesse said in an interview. “The downside is much more obvious than the upside.”

Huge stimulus injections have fuelled the climb in the S&P 500 since the sell-off sparked by the coronavirus in March. The gauge fleetingly surpassed an all-time high earlier this week, leaving strategists wondering whether the emergence of a vaccine could vault the index to a fresh record, or usher in others kinds of market upheaval.

Boston-based PanAgora Asset Management Inc, which processes vast quantities of data to evaluate drug trials, sees an 80 per cent probability of a vaccine by mid-2021. Goldman Sachs Group Inc said investors should consider the risk of a successful inoculation unsettling markets. A Bank of America Corp unit said a Covid-19 shot should propel stocks to new heights.

“It’s highly unlikely that approval of a vaccine means everybody goes back to the office tomorrow,” Tadesse said, adding the reality of one being cleared for use is likely to be more complicated than markets expect. “These factors are among the challenges for equities to climb further this year,” he said.

Societe Generale’s analysis of bear markets during the past 150 years suggests significant fragility in the recovery so long as cyclical and value stocks underperform, Tadesse said.

In a July research report on vaccines and the outlook for markets in the wake of the outbreak, Tadesse wrote that studies of the long-term impact of previous pandemics point to prolonged negative economic repercussions that last decades.

Stimulus will likely help aggregate S&P 500 earnings recover from the Covid-19 shock, but some sectors, like airlines, may face permanent disruptions to cash flow, according to Tadesse.

“Easy credit creates and intensifies the zombiefication of firms that should have been gone from the nature of the business cycle,” he said. “When you come out of this crisis, it won’t be a strong rebound.”

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