What Comes Next

Here's a few numbers for your consideration.  The US now has something has over 28 million reported cases of Covid-19 with reported fatalities now hovering around a half million.  That is now basically the equivalent of losing the entire population of Atlanta.  Yet case numbers continue to decline, with Covid cases dropping 77% in the last six weeks.  Because of that decline the positivity rate nationally continues to decline as well.  I'm sure some of that has to do with the rotten weather we've experienced through much of the country this month.  Hard to attend a super spreader event in Texas if you're at home trying to figure out how not to freeze to death.  The prime reason for this decline in infections has to be the ramping up of vaccines.  We've now given over 64 million first doses of the vaccine and over 19 million second doses.  The other is that we're likely underreporting the amount of actual Covid cases in the country.  One statistic that's beginning to gain traction is to multiply reported cases by 6.5 to gauge the actual infection rate.  Those numbers would suggest a mind boggling 182 million of us have actually had the virus with many never showing an symptoms of being infected.  That equates to about 55% of the population.  The virus is running out of places to hide.

Whether these numbers are correct or not, we do know that vaccination is increasing with the constraint starting to be the lack of vaccine then places to go get jabbed in the arm.  That is rapidly improving as well and experts are starting to believe that we're going to have a glut of vaccines by the spring.  So the numbers are encouraging.  By May I think anybody who wants the shot will be able to get it.  I think my estimate of a reopening economy by Memorial  Day is probably to pessimistic.  I think it's possible we could see the first hints of normality by mid-April.

What I think comes after that is an economic ramp the likes we've not experienced in decades.  There's now over a year of pent up demand for everything denied to people for so long.  A primary spend will be  for entertainment, trips and all the accoutrements that come with that.  Finally going on that cruise you'd planned for last year?  Many will want new of everything; shoes, swimsuits new dinner outfits, you name it.  Haven't been to church or synagogue  since last spring?  Maybe the kids are going to need something nice to wear now that they've outgrown their old clothes.  Finally can get together  with your friend group or your significant other to go out to dinner?  Pick someplace nice and maybe you'll need a new outfit.  We had no vacation last year?  No problem!  We're going to Disney World!  We can now start to envision a world where you can once again attend a sporting event, go to a concert, go to a restaurant without feeling like you're in an isolation ward, go to a religious service, have a party, fly to see your parents, have your parents greet in person the grandchildren they haven't seen in so long or perhaps meet for the first time.  We can also start to think of a time when we can have a memorial service for those taken by this plague, have graduations, have a wedding, have a party, dance, and hug a friend.  All the things that have been denied us for so long will start to come back and people are going to embrace this great reopening with the same exuberance as sailors coming into port after a long stint at sea.  

The multiplier effect of all that money coming out of hibernation is going to be stunning.  You're already witnessing this in places that have relaxed Covid restrictions, but many of the largest cities are still under lockdown as much from the weather as the virus right now.  I think whatever GDP estimates out there for the next few quarters are probably low.  I think earnings estimates for the market may not reflect what I think is coming and that could be supportive of stocks in the coming months as well.

Speaking of the markets, they've been churning around a bit here in the last few weeks and that may seem counterintuitive based on the rosy economic forecast that I think could occur.  A few thoughts on this.  One is that the markets have been on an absolute ramp higher these past six months, with most major indices posting solid double digit returns during that period.  Valuations could appear high to some based on current earnings expectations.  What I think will eventually beat out that concern is the coming consumer demand.  People have had so little to spend on other than the basics of life and they're going to be in a mood to party.  The other thing to remember is that markets anticipate news and investors have been factoring in for months that there would be a point in 2021 where the economy would open up.  A "sell the news" reaction to some of that should be expected.  We're also seeing a rotation away from some of last year's high flyers and into those areas of the economy mostly primed to benefit from the coming reopening.  Along with these reasons comes the gentle reminder that stocks can correct at any time and one should be prepared to accept that markets have the potential to decline anywhere from 5-20% during a year and have historically done so.  Also we are nearing the end of the most favorable period of the year for stock prices and it wouldn't be too uncharacteristic for stocks to mark time for some period of time.  Know your asset allocation strategy and constantly review your risk/reward parameters.  

Some final notes on what I think is coming.  People will rightly point out that the above column perhaps doesn't take into account all the suffering that many have endured during the pandemic.  I am not trying to minimize what's occurred.  My job requires me to try to look into the future and with that I'd like to think I have some read on people.  Experience tells me that people are going to be in a mood to live again.  Besides many of those impacted the most from the lockdowns are those in service and entertainment businesses.  These are the people most likely to be the beneficiaries of the great reopening as it occurs.  I also think what's coming is already in the pipeline and isn't taking into account all of that stimulus the Biden Administration is going to push into the system.  Finally I think there will be a grand national reckoning when this is behind us.  We're going to emerge from this having weathered a great thing and we'll be dealing with the fallout from this for years.  That, however, is for another column.