Investment Strategy Insights: Learning To Live With An Endemic Pandemic

The flare-up of the Delta variant has heightened concerns about successive waves of Covid, with new evidence indicating that even vaccinated people may become infected, with so called breakthrough cases. These cases are increasingly likely the longer it has been since vaccination, compounded with the same vulnerabilities (age, weight, compromised immune systems). That’s in addition to the large portions of the world that remain unvaccinated and even more susceptible. In the US, the recent call by the Centers for Disease Control and Prevention for vaccinated people to resume wearing masks in indoor public places is aimed at high-risk areas of the country. The reality of this second pandemic year has turned out to be far less triumphant or colorful than last year’s Kodachrome dream of a vaccinated world. For investors, the challenge is determining how policymakers and others will react to what may turn out to be an endemic condition for many years to come, with potential lockdowns in material portions of global GDP posing the risk of market drawdowns.

As worrisome as the flare-ups are, the mood in most developed nations has shifted since the earliest days of the pandemic, where fear of the unknown drove lockdowns. Outside of Asia, whether because of lessons learned, fatigue, or a combination of both, there is little appetite among Western policymakers to again shutter economies. In an increasing number of emerging countries without access to efficacious vaccines, the reaction is becoming a shrug, acceptance of natural immunity, and keeping their economies open.

To date, the Delta variant has looked like a Roman candle, ripping through India at record speed, cresting just 40 days later, with cases subsequently crashing. This pattern is now repeating in the UK, with cases skyrocketing for 40 days, then crashing in this past week. Cases peaked simultaneously at the same number of days for both the well vaccinated UK and the poorly vaccinated Indonesia, where Indonesia experienced record fatalities while UK fatalities rose a bit, yet remained substantially below prior Covid waves, and occurring almost exclusively from the unvaccinated. While breakthrough cases themselves are fear-inducing, symptoms tend to be very mild with the incidence of hospitalization and fatalities dramatically lower.

The vaccination wall is holding, and in spite of all of this, slogging through seems to be the most likely policy course of action for most countries. Fortunately, we’re all now better prepared to do just that. Businesses, individuals, governments, and non-profit organizations including hospitals have all learned how to adjust and cope with this pandemic. For governments, all efforts short of lockdowns are likely to be emphasized, including social distancing and more mask requirements, as well as an even greater push to encourage vaccination.

Each wave is generating less economic and market disruption, with risk and safety both continuing to rise during this recent Delta variant wave. Nonetheless within markets, rotation toward safety has been pronounced since April given the fear of lockdowns, which are unlikely to manifest. Such fear may itself soon crest and fall, like a Roman candle.