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July 1, 2020

Not Locking Down

A resurgence of new Coronavirus cases around the country has created uncertainty in the markets.  Stock markets fell last week, not because of the virus, but because markets fear another round of economy-killing, government-mandated lockdowns.  We don’t expect that to happen, but when the government is involved, risks are definitely higher.

Early April was the peak and the seven-day moving average for new cases bottomed on June 9 at 21,282.  Since then, they’ve surged, hitting around 40,000 per day in the seven days through yesterday.  That’s an 86% increase in only 19 days. 

Some of the increase in new cases is due to more testing, but not all of it.  States where the number of cases has increased the most include Arizona, Florida, Texas, Mississippi, Nevada, South Carolina, and California. Tentative evidence indicates that the rise in cases has been driven by higher summer temperatures in hotter states, where air-conditioned restaurants and bars have reopened.  It is also not a coincidence that cases (even in states that started lifting restrictions in early May) surged after recent social unrest (both peaceful and otherwise).  Antibody tests suggest that we would have seen many more cases than were actually reported previously if the level of testing was were it is today. 

Either way, while virus cases have increased, deaths have not. Last week, national deaths averaged 596 per day, the lowest since March, and are down almost 75% from the peak in mid-April. 

The average age of those testing positive for the virus appears to be falling, and we know younger and healthier individuals rarely get severe outcomes.  Also, it appears that medical facilities have learned a lot about treating patients with the virus. This helps explain why cases have risen, but deaths have not.

As a result, although some states and cities have re-imposed limits on people congregating, we doubt we’re headed back to broad April-style restrictions.  The virus will be with us, until it is not.  Social distancing may slow the spread, but can’t stop it.  People and businesses are adapting. It seems the humans want to get back to normal. 

Interesting economic news…the TSA reports that the number of airline passengers going through checkpoints in the week through June 25th was up 12% versus the prior week.  TSA data show a steady and uninterrupted increase in passengers since bottoming back in April.  Airlines are adding back flights and advising some of their flights will be full.  The conclusions is that economic activity continues to rebound from the widespread shutdowns.  

We still project that the recovery process is going to take years. A return to low unemployment is going to take years. However, even with a steep drop in corporate profits in the second quarter, in the current low interest rate environment the models we rely on say stocks are still inexpensive, which would indicate we are unlikely to retest the market lows.  

A spiritual principal enjoyed recently…What we focus on and appreciate – appreciates. Happy to hear from you and to talk about what your focus is.

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