In my opinion, investing lines up as much in the column of a social science as it does in the arena of a financial discipline. I’ve long viewed the financial markets not only as a pricing mechanism for profit and risk, but also as a form of high-profile social barometer, and I think the stock market in particular can provide advanced insight on a nation’s social mood.
This pursuit can be difficult enough in regular times, but now investors have also been dragged into a strange new realm as well, the world of epidemiology. I am not an epidemiologist, and I have resisted the urge to make predictions or form investment themes on how the COVID-19 crisis would evolve. I have endeavored to just admit I had no idea how the pandemic would progress, and instead wait for and review real data as it emerged. Presuming the crisis in the U.S. really started around Jan. 31, we now have three months of real data to look at.
I receive a daily Coronavirus Dashboard briefing from the research group at a firm called Natixis providing a concise but thoughtful look at the emerging data both COVID-19 and market related. So, unless sourced elsewhere, the data and analysis I will discuss in this particular column comes from the Natixis daily research update.
The analysis in the dashboard indicates the U.S. as a nation is still in the early stages of the epidemic curve. Early hard-hit regions like New York and Washington state are showing signs of moving past the peak of infection, but other areas, quite frankly our area, are still considered to be at earlier phases of the curve.
Some good news is the collective social distancing sacrifice we have all endured is altering the trajectory of infection, and health care capacity in the U.S. has for the most part not been overwhelmed. Our brave health care pros are managing the COVID-19 burden effectively on the health care front.
Unfortunately, the fatality rate associated with COVID-19 continues to be stubbornly and frighteningly high, and while the disease is fatally impacting older Americans with pre-existing conditions, younger folks with no pre-existing conditions are also among the fatalities at material numbers as well.
The analysis suggests the key to addressing this distressing trend on the social and economic level is for more widespread testing to be made available. In this regard the progress has been frustratingly slow, but new methods and technologies are being employed to improve the situation.
Regrettably, the analysis also shows Indiana on the lower end of the scale when it comes to testing frequency by population, and anecdotally anyone I know who has had to deal with testing has been exasperated by the slowness of the process.
On the economic, and therefore the investing front, the analysis has taken the prospect of the desirable “V” shaped recovery off the table. The denominator between the desired “U” shape recovery and the what the analysis refers to as the dreadful prospect of falling into an “elevator shaft” result is simply time.
The great majority of Americans have sacrificed for the common good and followed social distancing guidelines.
For their part the federal government and the Federal Reserve have flooded the financial system and economy with money, reducing stress in the bond market, which also reduced stress in the stock market, enabling a nice mid-crisis rally.
If our collective sacrifice is effective at buying time for testing and treatments to develop, and policy makers can move beyond partisan bickering, the analysis puts the prospects of an economic recovery in the time frame of only weeks.
If, however, the pandemic eludes containment either through viral factors or social factors and the government slips back into partisan gridlock, the analysis does put a deep recession lasting months or even a depression within the range of outcomes.
I still refuse to turn into an epidemiologist, I like my own day job thank you. But until the COVID-19 crisis is over, sadly nothing else really matters. So, as I find useful research and insight I will pass it along. One day at a time.
Opinions are solely the writer's and are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing involves risk, including loss of principal. Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com. Securities offered through LPL Financial, member FINRA/SIPC.