After enjoying a sharp and quite unexpected ten-week rebound from the depths of despair in March, last Thursday’s 6% drop in global markets reminded us that, while lockdowns are being lifted and life is beginning to return to some sense of normalcy, we are still in the relatively early innings of a longer-term slog to get through the COVID-19 pandemic and the economic damage it’s wrought. This thought had been percolating in my mind prior to last week’s return to Earth, as I watched with some amazement as the Dow temporarily recaptured 27,000.
The market’s meteoric reflation was fueled not so much by terribly good economic news, but by news that was just less bad than everyone thought it might have been. I think it’s reasonable to hope and expect that we may have seen the worst of the economic news (a 15% unemployment rate, near-complete retail shutdown, year-over-year travel being off by almost 100%, etc.), but there remains very little clarity on two important fronts: 1) how fast we might expect economic activity to return to something approaching its pre-coronavirus trendline; and 2) what the trajectory of the coronavirus’s might look like as we move through summer and into fall. Of course, the former heavily depends on the latter.
Over the last two weeks, we have seen in Florida, Texas, and Arizona that warmer weather itself, while perhaps helpful in slowing the virus’ spread, is not a panacea, and that a return to normalcy without adequate precautions is not likely to work out well. However, despite increasing case counts and hospitalizations in some hotspots, there is no sign the U.S. has the appetite, economically or politically, for anything approaching the level of shutdown that would stop the virus in its tracks. Because of this, I would be very surprised to see anything approaching the level of economic shutdown we witnessed from March through May, and I also suspect we will see economic activity continue to limp back from it’s April lows, while also seeing the virus continue its spread at a low-to-moderate level throughout the summer.
I continue to be encouraged by news on two important fronts: improved efficacy of treatment protocols and the possibility of widely available vaccinations sooner than was originally hoped. A pre-publication study from Italy looking at COVID-19 outcomes in two provinces showed a 40% reduction in fatalities from March through April with significant improvements in outcomes across several risk factors including advanced age, hypertension, diabetes, cardiovascular disease, COPD, and renal disease. The findings need to be confirmed by other studies, but as researchers and medical experts are learning more about the disease and potential treatments, outcomes seem to be improving.
On the vaccine front, in a June 3rd Q&A with the American Medical Association, Dr. Anthony Fauci said the U.S. hopes to have up to 100 million doses of a vaccine by the end of this year and 200 million doses by early 2021. More recently, Sir John Bell, the Regius Professor of Medicine at Oxford University, who leads a vaccine development team in the U.K., said in an LBC Radio interview this weekend that if everything goes according to plan, the U.K. could expect to start vaccinating its population as early as September, with hope of having the entire country vaccinated by Christmas.
So, where does this leave us? On the medical front, there is reason for optimism as treatment protocols improve and new ones are added, and leading experts tell us we may have a vaccine available for deployment much sooner than was originally hoped for at the start of this crisis. However, from an economic standpoint, this is going to take some time, even with advances on the medical front that are happening at unprecedented speed. The damage that has already been done will take years to fully recover from, and even if we have hit bottom by several measures, there is almost certainly more economic pain to come, partly due to the damage that has already occurred but also due to the economic damage that will continue to unfold between now and the time the world’s population has been vaccinated.
So, what might this mean for markets and your portfolio? It’s hard to imagine that we won’t have some ugly stretches ahead before this is all said and done. But, as I’ve pointed out before — and as we saw in technicolor this spring — we don’t have to get all the way out of the economic hole for markets to recover; we just have to see, with some clarity, the possibility of a reasonable path between here and there. And, when that clarity eventually arrives, don’t be surprised if you see a sharp and quite unexpected market updraft. Markets tend to be very forwarding looking, even if they do get a bit ahead of themselves from time-to-time, and while the outlook in the intermediate term seems unusually murky, I don’t think history gives us any reason to doubt the longer-term outcome.
As always, please let us know if you have any questions or would like to talk over your specific situation.
P.S. If you’d like to stay up to date on some of the more encouraging developments on the COVID-19 front, including some of the datapoints I mentioned in this piece, please visit our Is There Any Good Corona Virus News page.