Riding the COVID Rollercoaster
Post from First Trust Economics Blog
Brian S. Wesbury – Chief Economist
Robert Stein, CFA – Deputy Chief Economist
Nov. 29th 2021
On Friday, news of a COVID-19 variant identified in
South Africa, and the announcement of new travel
restrictions, sent markets reeling. This is obviously not the
only variant, and it won’t be the last, either. In our opinion,
it’s not the new variant that is the problem, but the
government’s potential reaction to it. Oil prices fell 13%
on Friday, pricing in a potential new round of lockdowns.
We’re obviously not scientists, but what seems clear
is that vaccines have underdelivered on their promise of
ending the pandemic. Yes, relative risks for hospitalization
and death are reduced (though not eliminated) after the jab,
but fully vaccinated individuals can still get and spread the
virus. This means the “zero COVID” strategy that public
health officials have been pursuing since the pandemic
began needs to change.
At this point, what seems likely is that COVID will
gradually become like the flu, where there is a
vaccine/booster available each year depending on what
strain is most likely to be prevalent. Providing the public
with accurate information about risk factors surrounding
age and comorbidities is more important than ever.
However, our fear as economists is that certain urban
areas in the US could be stuck in a cycle of fear, with each
new variant leading to more draconian measures. This is
where policymakers and individuals with disproportionate
influence live, and their mindsets have become gradually
divorced from the rest of the population. Just look at the
packed stadiums at college football games.
Most importantly, is this how people want to live?
Economic planning for businesses has become impossible.
Individual travel plans can be disrupted at any moment.
Maybe you are already fully vaccinated and are not overly
concerned about mandates. What about when boosters
become required to maintain your fully vaccinated status?
Dr. Fauci recently hinted that this would be the case.
Where is the offramp to normal life at this point?
Fortunately, we think widespread shutdowns are
unlikely in response to this or any variant. Recent election
returns in New Jersey and Virginia suggest the American
public is fed up with the overly cautious policy mix chosen
by officials in the past year and a half, including
widespread shutdowns and tough mask rules.
Another round of shutdowns could turn a political
environment that we believe favors a Republican wave in
2022 into a Republican tsunami. Democratic political
strategists will be cautioning their party’s leaders not to
court fate. Although it’s not our base case at this point, it’s
not outside the realm of possibility that another harsh
shutdown would lead to a filibuster-proof Senate majority
for the GOP in 2025.
Put it all together and we think investors need to
continue to be ready to ride the COVID rollercoaster.
Given record high profits, we still believe stocks are
relatively cheap. That doesn’t mean there won’t be dips,
though, or even corrections. But when they happen, they
should still be considered buying opportunities.