No event-driven bear market example analyzed by the bank was driven by a global public-health crisis, and the lack of precedent leaves markets with few sources of optimism. Most downturns were prompted by market-specific events, allowing monetary policy to respond and directly ease stresses.
The coronavirus's economic fallout can't be patched as simply, Goldman said, and the rapid jump in quarantine activity dulls the impact of governments' usual stimulus measures.
"Interest rate cuts may not be effective in an environment of fear where consumers are required, or simply inclined, to stay at home," Oppenheimer wrote.
Even if rate cuts could effectively lift the economy from its virus-induced decline, the recent bear market arrived as interest rates already sat at historically low levels. The position left central banks like the Federal Reserve with little room to enact "effective policy response," Oppenheimer wrote. The situation is increasingly dire in countries with negative rates, an economic experiment with little known about its long-term side effects.
Past pandemics such as 2003's SARS saw equities markets quickly bounce back from their lows once the rate of infection in secondary outbreak sites slowed. While China has effectively curbed contagion within its borders, escalating outbreaks in the US, Italy, and Iran prompted fresh selling as investors traded risk assets for safe havens.
The stop to economic activity in Europe and the US will further harm markets before they recover. Historic amounts of fiscal stimulus will be required to keep the event-driven bear market from turning into a prolonged downturn, Goldman said. The rebounds seen after past crises were fueled by consumers' quick return to regular activity, and such recovery amid the coronavirus pandemic is unlikely, according to the bank.
"The fear factor around the economic shock from preventative measures may push markets down further in the meantime," Oppenheimer added.
The lockdowns taking place around the country to prevent further contagion will place a larger-than-usual pressure on earnings than seen in past bear markets, the bank said. Such a hit to quarterly profits "does not necessarily mean that markets cannot rebound sharply," but it suggests markets will fall further before turning higher, Oppenheimer wrote.
The strategist remains hopeful markets will return to past levels quickly once the virus threat subsides, and pointed to employment levels as the biggest risk moving forward. A jump in unemployment would likely usher in a long recession, Oppenheimer wrote, while a resilient unemployment rate would set the economy up for a healthy recovery in the second half of 2020.
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