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.