COVID cases breaking pandemic highs.
Hospitalizations on the rise.
More knowledgeable and better suited to deal with third wave.
Watching states measures, sentiment, and employment.
Data likely to get worse before it gets better; looking for opportunities.
As the weather has changed so has our trajectory in COVID 19 cases. On November 4th, the U.S. surpassed 100K daily confirmed COVID 19 cases for the first time since we have fought this pandemic. On Friday, we surpassed 170K daily COVID 19, a record, and the virus has infected more than 10 million Americans or ~3% of the American population. There are over 65K Americans in the hospital due to COVID 19, a statistic that has surpassed our previous peak of 59K (in the summer).1 While the death rate is rising, at this time it remains below our other two peaks.2 These statistics are troublesome but not unexpected. We have anticipated the fall would be a difficult time for the virus as Americans moved indoors and experience “COVID fatigue.” If there is a positive about this “third wave” of the virus, it is that we are much more knowledgeable about the virus and have therapeutics that we did not have in March/April. However, we are seeing several measures that threaten the near-term trajectory in economic growth.
Some items we are watching include:
- Reopening statistics: According to the National Law Review which tabulates states that make changes to their reopening phases, 17 states have made some adjustments to their reopening including mask mandates, limiting gatherings, closing restaurants and bars.3 We are watching these developments closely especially as they can negatively impact near-term economic growth.
- Consumer sentiment: Last week we saw a surprising drop in Consumer Confidence. Confidence in the future economic outlook saw its worst one-month decline since the depths of the pandemic (April). Consumers also saw their incomes decline for the first time since 2014. This can be related to the rise in coronavirus cases and the lack of progress on fiscal stimulus.
- Consumer behavior: Thus far we have not seen a significant drop off in activity at restaurants, travel, and/or gasoline demand. However, this may change in the coming weeks as states have pulled back on their reopening measures.
- Employment indicators: We have started to see a sustainable improvement in employment with jobless claims falling to the lowest level since prior to the pandemic (March). We will continue to watch these weekly indicators as the improvement may be stifled by additional lockdown measures.
THE BOTTOM LINE:
The equity market is shrugging off the recent surge in COVID cases. Investors typically look 9-12 months ahead and with two highly successful vaccinations in the pipeline, they are looking beyond the current healthcare challenges. However, it is likely that data in the near term will get worst before it gets better so we will continue to look for opportunities to add to our overweight global equity allocation given our long-term investment time frame. We expect the Fed to take additional measures at their December meeting to bridge the gap until we can get a fiscal stimulus (likely 1H21) package to help businesses and individuals suffering from the recent surge in cases.
By Megan Horneman