- In the shortest of terms, a vaccine brings positive momentum to the markets.
- Short to mid-term, we are not out of the woods; the next few months may be challenging from a healthcare standpoint and ultimately an economic standpoint.
- The long-term brings expedited trends to the market/world; it will be fascinating to see how these are developed further and absorbed by consumers/businesses.
If one thing is clear about COVID-19, the stock market loves the idea of a vaccine. The markets have popped on the news of both Pfizer and Moderna vaccine trials, leading the markets to all-time high levels. For those following at home, that is a round trip market movement from around -35% down, followed by a recovery of around +55%. Not to mention, all this market movement was within nine months! Think how different most people’s emotional status is right now versus back in March. The emotional swings, which were experienced globally, are truly one of the most fascinating things most of us have ever experienced in our entire lives.
In the shortest of terms this brings positivity to the markets and to the economy. With a potential vaccine in sight, consumers, investors, and business owners alike are able to identify some idea of what the backend of this pandemic may look like and when it may occur. It helps consumers make decisions surrounding consumption, cash savings, holiday spending, and their personal finances. It helps business owners make decisions surrounding hiring, maintaining employees, taking on debt to stay afloat, risk taking, etc. Most importantly, a vaccine sooner rather than later reduces the most feared portion of the tail risk from a multi-year pandemic.
In the short-term we are not out of the woods. With cases, and more importantly hospitalizations, increasing, the next few months are going to be the most difficult. This also comes at a time of holiday get togethers, quarantine fatigue, and months the population spends more time indoors. The impacts both from a healthcare perspective and ultimately an economic perspective could easily have rippling affects on the economy and markets. We are far from the end of the pandemic, meanwhile, we believe the market is pricing in a very rosy-pictured, perfectly executed outcome. The sooner that a vaccine is finalized and disseminated, the lower the risk of economic instability during the winter. However, when the urgency to deal with a pandemic begins to wind down, reality will set back in for government leaders and business owners alike. We still have a trade issue with China, a struggling-to-grow middle class, and significant government debt. We should note that there are positive tailwinds, as well; but these headwinds will need to be dealt with, as the pandemic begins to be in the rear-view mirror.
In the mid/long-term the pandemic has changed structures and expedited trends that were likely coming down the pipe. The absorption of these trends was exacerbated by mass quarantines and how we deal with those trends now will be fascinating. Many of these trends are likely pro-business, but we have not yet fully identified how they would be realized by industry and consumers.
What do we do now? Complacency is the biggest risk to consumers and investors at this time. We must stay diligent and make solid, fundamental decisions. We need to ensure that we have enough cash (or low volatility assets) available, should you need them. Now is a great time to review your asset allocation in relation to your emotional ability to withstand volatility. It is important to allocate funds for near-term needs appropriately, but still allow risk assets to do their job for mid/long-term growth. Most importantly… keep us abreast of your situation. The more we know about what is going on in your life, the better of an advocate we can be for you.