Should the Market Continue To be Concerned with Covid Cases?
The Combined Wisdom of the Stock Market Seems to Say “Covid is so 2020”
Stock performance seems to be in contradiction to the uproar in mainstream media and some social media as they report stats on rising Covid-19 cases. It seems like once a week, markets break record highs, and it has been over a year since the S&P 500 has dropped by 5% or more. This indicates that investors are feeling positive as they look forward to corporate earnings and U.S. economic growth during the remainder of 2021.
After a year and a half of what is presumably the worst of everything that comes with this virus, individual investors that weigh probabilities of whether a stock will go up or down may be relying on recent history that suggests the worst didn’t turn out bad for their portfolios. For professionals that are expected to maximize risk/return performance, they are better able to defend performance numbers because they were “fully” invested rather than keeping cash on the sidelines.
Fear-inducing reports that last year could have led to selling are taken in stride mid-year 2021 — So much so that even when broadcast and print news are highlighting that a more contagious variation of Covid-19 is making its way around, the market reaches all-time highs. There is widespread reporting that those inoculated to make them immune to Covid may not be able to avoid being infected with mutations from the original. Examples include the nine Olympians that were inoculated but could not compete because they tested positive for Covid. Making headlines in the U.S., of the 469 new cases in the county containing Cape Cod, Massachusetts, 74% were in people who’d been given a Covid shot. As states and localities determine if they should clamp down on citizens and businesses, market participants seem to be saying, “it can’t be as bad as last year” and “…Last year the market ended terrific.” So Covid may be viewed as a positive by some investors, many new traders that are helping move the market may not know how to trade without the news volatility and added liquidity of a prolonged pandemic.
Coming into Monday (August 2), the seven-day average of new Covid cases in the U.S. was approximately 80,000, up 129% since the seven-day period ending July 19. S&P 500 and Dow Jones Industrial Average futures, however, were up about 0.5% and 0.4%, respectively. The “Covid trade” may be losing its power.
We live in a global economy. The worldwide seven-day average of new Covid cases is about 596,000, up only 15% from the seven-day period ending July 19. That is from a number that is well off its peak and certainly better than the reported U.S. 129% figure. Excluding the U.S. figures, the worldwide seven-day average is about 517,000, up 6% from the level on July 19. Every day 3700 people around the globe are killed in traffic accidents, many more are seriously hurt. The market has become accustomed to those figures; perhaps they are growing accustomed to living with this additional threat.
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