Investors are undervaluing the positive impact a coronavirus vaccine will have on the markets, said Goldman Sachs analyst Kamakshya Trivedi.
Trivedi also says chances are good that a vaccine will be on the verge of approval in three months, changing the entire landscape of the economy in the process.
"The range of outcomes is wide and our highest confidence is still in ongoing U.S. dollar weakness. We also think that options markets are underpricing the upside for equity indices from a nearly vaccine," Trivedi said.
A vaccine in three months would shift market assumptions about growth and persistently negative rates and could result in renewed investor rotation toward "traditional cyclicals."
The firm says that it expects at least one coronavirus vaccine to gain Food and Drug Administration clearance by the end of November and to be broadly distributed by the middle of 2021.
The note is mostly bullish in its assessment of where the U.S. response to the virus will be in three months, including the prospect of reopening schools in the fall.
"Reopening schools safely may have important economic benefits, both within the education sector and parts of the economy closely tied to it, and because it may alleviate child-care constraints," Trivedi said.
"However, it also opens up new channels of interaction and risk. The evidence so far suggests that there is a path to reopening schools without prompting a sharp increase in virus spread."
The coronavirus pandemic and subsequent lockdown resulted in an unprecedented 32.9% drop in U.S. second quarter gross domestic product, annualized.
Current-dollar GDP fell 34.3% or $2.15 trillion in the second quarter, according to the Bureau of Economic Analysis.