As of writing this article what was recently thought to be a disease under control seems to be on the rise. The new Delta variant, relaxed guidelines, and slowing vaccination rates seem to be at the root of the second or third (depending on who you ask) round of Covid-19. As of writing this, we are eclipsing 100,000 new cases a day, which puts us back at roughly last October’s infection rate.
The question of the day though, is what does this mean for the markets/economy? I think it best to lay out some facts, along with what we’ve learned and know.
Let’s start by airing all the dirty laundry.
- Infection rates are up significantly. Just two months ago infections per day were hovering around 10,000. Today we are 10x that!
- Vaccination rates are slowing. According to the CDC as a Nation we are around 50% fully vaccinated.
- Experts suggest we need approximately 80% of our economy inoculated to prevent continued flare ups.
- There is a growing sentiment of unease and confusion for basically everyone.
- The U.S. public seems to be entering Covid fatigue. We seem to be over this pandemic, but sadly this pandemic isn’t over us.
- There are growing pressures to reinstitute mask mandates regardless of vaccination.
- Many companies are starting to mandate vaccinations for lots of employees.
- Companies are struggling to find employees willing to work.
- Hospitalizations are up.
Now that I’ve laid out the bad of what is going on let’s discuss the good.
- Death rates are still substantially down and seemingly not increasing.
- Those vaccinated are less likely to be hospitalized than the unvaccinated.
- Unemployment rate is around 5.9% which, while not at pre-pandemic levels, is historically pretty good.
- There is a growing sentiment of people less scared of contracting the virus.
- We have been here before, thus the uncertain factor is less threatening.
- We are seeing an uptick in those getting vaccinated. As of writing this blog, 70% of people 18 years old or older and 90% of those 65 or older have received at least one dose.
- Stock market around all-time highs.
- Corporate earnings are up and industries hardest hit by the pandemic are recovering.
- GDP growth continues its recovery, with the first estimate of Q2 2021 GDP growth at a 6.5% annualized figure.
Now that I’ve laid out what the experts are seeing, let’s discuss the impacts on the markets. There are two things that are personally giving me the most optimism when it comes to the markets.
First, we’ve been here before. If you’ve read my messages over the past year and a half it is pretty consistent. Markets hate uncertainty. And I mean, really hate it. What we know now is that even if cases continue to rise, we’ve lived this already. By and large, our economy came out of it extremely strong. Yes, we had our first recession in over a decade, but I take much comfort in knowing we have been here before.
Second, we invest for the long term. I cannot stress this enough. If you are investing in the markets for a quick thrill or the short term, you are going about it all wrong. We invest in the markets as it is the single greatest way to consistently grow our wealth over the long term. Yes, it wasn’t fun for me last March seeing my investments down 30%. That said, I didn’t change anything about my portfolio allocation, nor did I recommend any clients to do so either. The only people I know that got hurt in the markets over the past year were either short-term investors or emotional investors.
What’s Next With Covid 2.0?
Now, the next question is what can you do to prepare? I’ll start by saying we here at Diversified still see lots of growth opportunities out there. If Covid 2.0 continues to threaten us there will be winners and losers in the markets. Could airlines take another hit? Will e-commerce companies continue to dominate the economy? Ultimately, investors should remain diversified, focused on long-term growth, and remove themselves from the minutiae of daily market news. Remember, markets are forward-looking and must be approached with that mindset to understand their behavior.
Here lies the beauty of actively managing portfolios. We firmly believe there are undervalued areas of the global markets and areas we will continue to see flourish. This won’t come without bumps, as global markets are up 92.8% as of August 11, 2021 (measured by the MSCI All Country World Index) since the 3/23/2020 market bottom and now stocks are trading at expensive levels. There is a lot of optimism priced into stocks, and investors need to be proactively thinking about their portfolios to find opportunities. This leads to my first recommendation, work with someone that will stay on top of all this for you. It is a very complicated and tiring thing to analyze the swarms of data that are coming in. Outsource it would ya!
The other key benefit is the behavioral side of this partnership. Now, I don’t care who you work with or who your sounding board is but get one and get one fast. Preferably, someone you will listen to as they try to keep you calm. I am also a huge proponent of following individuals I very much respect, but also have very different opinions than I. It is crucially important to arm yourself with these people and information as in my experience cooler heads prevail. All investors should consider who they want in their corner when markets fall 33.6% in just over a month (as they did in early 2020). These are the types of decisions that impact the long-term financial success and cannot be underappreciated.
Regardless of What is Next
If I had a crystal ball I promise I’d share it with all of you. That said here is what seemingly I know.
- Covid is on the rise and we better prepare.
- Whatever lies ahead it is simply the next step in an endless array of steps. Keep calm and keep the course.
I know this is a sensitive topic for many of us, and I always do my best to remain unbiased. I am saddened at the divide this pandemic has caused our country, as I would have hoped it would have brought us closer together. We all have the same end goal in mind and I truly do hate this has become as much a political item as a global health crisis.
I truly wish everyone stays safe out there and know we are here to continually provide individual guidance to each and every one of you to the best of our ability. We love you and as always stay wealthy, healthy, and happy!