With COVID-19 cases spiking across the U.S. and no end in sight, one analyst believes an overly-bullish market is facing two big risks to its assumptions that the economy can rebound from the pandemic.

On Monday, Oxford University and AstraZeneca announced promising results from an early phase human trail of its vaccine candidate. In the face of growing hopes for a coronavirus vaccine, investors have been bidding up stocks aggressively, despite mounting bad news about new COVID-19 infections.

Yet Tom Essaye, founder of the Sevens Report, told Yahoo Finance on Monday that markets are downplaying key problems associated with vaccine development. Currently, drug giants Pfizer (PFE), Johnson & Johnson (JNJ), AstraZeneca (AZN) and Moderna (MRNA) are among those racing to find an effective treatment, and are at various stages of human trials.

Saying asset prices are vulnerable to “vaccine disappointment,” Essaye told “The First Trade” that investors should be “careful about corporate press releases, versus actual trial data and getting something approved, and I think over the next couple of months that’s really going to come to a head.”

Treasury Secretary Steven Mnuchin elbow bumps with Rep, Kevin Hern, R-Okla., after a House Small Business Committee hearing on oversight of the Small Business Administration and Department of Treasury pandemic programs on Capitol Hill in Washington, Friday, July 17, 2020. (Erin Scott/Pool via AP)

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Shares of biopharma companies have been on fire since they began working on treatments and vaccines to stop the pandemic.

Moderna has seen its shares rise more than 300% year-to-date. However, JPMorgan analysts recently downgraded the stock to “Neutral” based purely on its frothy valuation.

According to Essaye, The second source of disappointment will be if an expected second stimulus package from Congrerss underwhelms expectations. It would suggest that “all of the sudden people get nervous that the economy is not going to recover in time,” said Essaye.

“Essentially all it will have done, is delay the pain from say April, June, July, to now November, December, January of next year,” he added.

Last week, the markets saw a rotation out of the big cap technology names into defensive sectors like utilities and consumer Staples ahead of the fiscal stimulus negotiations in Washington that kick off this week.

“It’s all a question of how much does the government keep shelling out in stimulus versus how quickly does the economy recover,” said Essaye. “I think there’s more uncertainty today than there was say three weeks ago.”

Ines covers the U.S. stock market from the floor of the New York Exchange. Follow her on Twitter at @ines_ferre

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Topics #House Small Business Committee #Instagram #Johnson & Johnson #Moderna #Oxford University #Pfizer #Tom Essaye