Much has changed in the span of just three months with respect to the Coronavirus. In my last update, I mulled how a reopening might play out. Indeed, it came to pass somewhat as anticipated, with reopenings happening in phases, largely driven by regional state and county initiatives. The result was a patchwork reopening, with some states, mostly conservative-leaning like Texas, reopening earlier, while other states like California reopened later. Trump’s task force provided guidance around infection trends and other benchmarks that were intended to help states guide their reopening, although some states moved ahead without meeting these criteria, in part motivated by populations eager to resume normalcy.
As expected, however, the broad population continued to show caution as we reopened, with only about 50% of consumers indicating a willingness to resume such activities as eating at a restaurant, staying at a hotel, or attending church. Even fewer were interested in things like air travel, where data indicates only about 1/4 as many passengers are travelling now versus the same time last year. Let’s now take a look at more recent virus trends, and assess the outlook once more as we move forward.
While new infections in the US in total were declining as we began a phased reopening, it was not long before cases began to accelerate again. No doubt this was partially a result of increased testing, but the numbers of new infections quickly became hard to ignore. Bars and other enclosed group environments became hotbeds for spreading infection, and states soon moved to close them in an attempt to stem the tide of infections. Unfortunately this seemed to be too little too late, as infections in the US were making new highs by June. New daily cases are now double that of the previous April peak, and are accelerating in more than 75% of all states. Florida, which followed looser protocols similar to other conservative states, has now set the record for new daily cases, even exceeding New York during its peak infection period. Alongside the increase in cases, people have become incrementally less willing to go out and consume.
As a result of the rise in new cases, some states have taken even further steps toward re-closing to help prevent the spread. California recently ordered the closure of virtually all indoor activities, including dining, non-critical office work, and more, in counties that collectively represent about 80% of the state’s population. However, it remains unclear what appetite consumers, businesses, and their states will have for re-closure, noting that public outcry against the closures were part of what forced reopening in the first place. Indeed, Florida has already indicated it does not intend to reverse course and re-close, despite being a nationwide leader in new cases.
It’s interesting to note that the demographics of those infected as cases reaccelerate seems to have shifted. Perhaps as expected, the newly infected population now skews younger. In Florida, for example, the average age of those infected in March was 65, while now it is 35. There may be several explanations for this. For one, expanded testing has now captured more mild and asymptomatic cases, where previously only the obviously ill were being tested as testing capacity was limited. Knowing the virus has a more severe impact generally on older population, the early skew towards the elderly makes sense. Another explanation is that the more at-risk population is generally taking more precautions now, and has better protected themselves from infection. Meanwhile the younger population has resumed more normal activities and has positioned themselves for increased probability of infection.
Indeed, the younger average age, and thus lesser vulnerability of those infected, seems to be corroborated somewhat by the lower recent frequency of deaths. While new daily cases are nearly two times that of the previous mid-April peak, daily death counts are still less than half of what they were at that time. This is encouraging. Keeping in mind that it takes time for new cases to translate into actual deaths, we are about at the point in time where the recent surge would be starting to manifest as deaths, and it has not happened yet. To be sure, hospitalizations have increased and deaths ticked up slightly, but a more resilient subset of the population, coupled perhaps with better knowledge and availability of treatment, could keep the death count from spiking. This could bode well for the path of reopening, making the choice for states to remain open somewhat more palatable. Consumption choices would remain more in the hands of consumers, rather than being controlled by state mandate.
The Path Forward & Investment Outlook
It seems likely that the virus will continue to ebb and flow, and the willingness of people to go out and consume along with it. While lesser-risk portions of the population may continue to participate in incrementally more activities, the older portion of the population will likely remain hesitant unless new case trends significantly reverse course. The older population has significant wealth and consumption power, and their lack of meaningful participation in consumption will continue to be impactful. Cyclically sensitive and in-person/experience-based sectors of the market will likely continue to remain under pressure until the light at the end of the tunnel is more clearly visible. More states reversing course on re-opening would only further strain these segments. Well-positioned sectors, however, like those associated with the stay-at-home environment, may continue to thrive. Indeed, strong consumption trends in these segments could endure as the government continues to provide support to both consumers and businesses. Note that household income actually rose amidst the pandemic to-date as a result of substantial fiscal stimulus.
It is unclear just how far off the light at the end of the tunnel remains. There are currently four vaccine candidates in final Phase III trials, which consist of large-scale human efficacy tests. One of these vaccines, produced by AstraZeneca, is further being supported by Trump’s Operation Warp Speed, which provides substantial funding to help the company both complete trials and produce large quantities of the vaccine in advance of results so it is ready to deploy. This vaccine could be approved and available for emergency use as soon as this coming September, with widespread availability likely early next year. However, there is no guarantee that this vaccine will be widely effective and safe, that the population will accept such a hurried vaccine, or that it will be capable of providing long-lasting immunity. I’m hopeful the global effort to defeat this virus soon bears fruit, and MACM’s investment team stands ready to adjust portfolios accordingly.