“Prepare and prevent, don’t repair and repent!
-Anonymous (but smart!)
We have not specifically addressed the coronavirus pandemic in these pieces yet. We did discuss reasons for the resilience of the stock market in June. And we also at various times have discussed sources of risk, something every investor should always keep an eye on. Let’s consider the situation for the rest of 2020 and beyond.
Disturbingly, unlike typical colds (which are a type of coronavirus) and flu, Covid-19 did not wane over the summer months. In fact, its spread has accelerated in the Deep South and southwest during a particularly hot summer. The best hope is for an effective vaccine ASAP. While it’s hard to keep up with all the news on this front (dozens of trials are in various stages all around the world), realistically, a vaccine, even an effective one (which is no sure thing), simply cannot be manufactured and given to enough of the population to confer “herd immunity” before, or even during, the next “flu season” this coming winter.
Even more disturbing is recent news that antibodies in infected people fade rapidly, thus not providing extended immunity. This is not only troubling because it means that people can be re-infected (of which there is accumulating evidence – the virus just hasn’t been around long enough to provide a big enough sample yet), it suggests that an effective vaccine may not even be possible. This means that attention needs to be focused on treatment and minimization of harmful symptoms (blood clots, inflamed lungs, etc.). History tells us that treating viral diseases is difficult at best – look at the slow progress in treating HIV despite 35+ years now of a tremendous, and expensive, global effort to cure it.
All of this suggests that, barring a sudden natural decline in the virus (say due to a favorable mutation that makes it less viral or less harmful), we will be dealing with this pandemic for quite a while, certainly for longer than most thought last winter. This has significant investment implications. The market as a whole, especially the large-cap S&P 500 and the tech-driven NASDAQ, may continue to do well; many companies in these indexes are actually profiting from the situation.
However, for certain sectors of the economy much woe may lie ahead. Airlines, cruise providers, theme/recreation parks, and restaurants come to mind. Some major companies in these industries may fail and the sectors as a whole may take years, if not decades, to adjust and recover. Major sports and entertainment (think big concerts) are also likely to be curtailed longer than almost anyone initially thought when cancellations began last spring. We don’t make specific recommendations on these pages, but there are clearly trade ideas out there. Our advice is to examine all of your exposures carefully for sensitivity to the virus continuing to be a problem throughout 2021 and even beyond and act accordingly. Safety first!
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