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Investment strategy
January 24, 2021
3 mins

V is for victory: Investor doubts at a time of maximum COVID

January 24, 2021
3 mins
David Bailin
CHIEF INVESTMENT OFFICER
Steven Wieting
CHIEF INVESTMENT STRATEGIST AND CHIEF ECONOMIST
Man receiving vaccination in the arm
SUMMARY

We look for a rapid economic recovery from the pandemic shutdown. But its timing will depend almost wholly on the speed and success of the current vaccination drive.


When a country is at war, it is hard to imagine peacetime. The news of new COVID variants, insufficient vaccine supplies and peaking Winter infection and death rates are hard to square with a stock market reaching new daily highs in the US and China. Given investor experience with the market recovery from the 2008 Financial Crisis, many rightly wonder if the US and world economy can really snap back quickly from the COVID recession of 2020. 

Let’s look at the data. Vaccinations are just beginning. The US exceeded the rate of 1 million doses a day just last week. To date, 5% of the US population has received at least one shot of the vaccine. Meanwhile, January 2020 looks to become the deadliest month of the pandemic with nearly 100,000 deaths likely. However, the seasonality of the disease shows that there are improving trends even before the vaccine becomes widely available. New cases, hospitalizations and deaths are, thankfully, already trending lower and the nature of the coronavirus suggests the deceleration may gain speed.  This would create ideal timing for vaccinations, as the best time to give them is when the disease is in abeyance. Thus, a “third wave” of COVID may be mitigated and herd immunity achieved sooner. Dr. Anthony Fauci suggested on January 22 that immunity may be reached by September in the US.

The economy faced great turmoil from the pandemic.The most COVID-impacted sectors of Transportation, Recreation, Food Services and Accommodations declined by the equivalent of 25 years of growth in the Spring of 2020. Some of that decline shifted consumption towards goods as consumers purchased appliances, fitness equipment and electronics in record volume. This drove shortages throughout the year and a revival of imports from Asia, boosting that region. 

The health threat is now again holding down economic activity more noticeably. In December, the US posted the first monthly decline in employment in nine months on renewed weakness in leisure and hospitality. And there is the possibility that new variants of COVID might extend the “season” for the virus later into the spring. 

Thus far, financial markets have been able to look past these dark days and conflicting narratives.The election of President Biden who has proposed massive new stimulus as well as program of mass vaccination, has countered the devastating health news and worsening labor market. 

Some investors must be harboring doubts after a strong market rally, with the consensus of US economists having marked up their 2021 GDP forecasts to a 4.3% gain. Plenty are competing to show off the most attention-getting high forecast. Broadly speaking, it is critical that the economy begin to deliver on its ample recovery promises sooner than later. 

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