Last week seemed like a game changer. At least at first glance. On Monday morning (11/9) investors got news of a COVID-19 vaccine that had preliminary data from human trials, and was found to be 90% effective. This was welcome news, and many stocks skyrocketed in response.
The market optimism was so overwhelming I had several stocks up over 20%! By Friday afternoon I was even seeing a weekly gain in some positions over 30%. Absolutely incredible!
While the stock market was relieved to hear the good news about a vaccine, the COVID-19 virus itself was setting it’s own record last week — 53 million infected worldwide. Record daily infections in the United States. Nearly 200,000 people infected in the U.S. per day.
What gives here? How could the stock market be so incredibly optimistic when the COVID situation and the economy is in such terrible shape?
While I’m all for optimism, I think we need to face facts — We’re not out of the water yet.
Monday was fun of course, but whenever I see spikes like this I try to remind myself that these are merely short-term fluctuations. NOT permanent increases to intrinsic value. We’re just as likely to give back those gains this week.
If you’re a long-term holder of shares (and you should be), don’t get caught in the hype. The stock market will almost certainly correct downward again, once investors realize how far-off the vaccine really is. There’s a tough road ahead.
Pfizer and BioNTech have stated they believe they can make 50 million doses by the end of the year. It takes two doses (a month apart) to be properly vaccinated, so that’s a mere 25 million people potentially vaccinated by the end of 2020.
That’s a drop in the bucket globally. According to the experts, it’s going to be months, possibly even a year before the average person can get hands on a dose of this amazing new vaccine. It may be late spring or summer before the vaccine is available to the general public, according to reports.
This means several more quarters of losses for hard hit industries. Theaters will continue to go empty, cruise ships will sit at port, and airlines will fly only their most profitable routes.
While Mr. Market was all optimism last week, the evidence suggests it’s going to take longer for the economy to turn the corner than Mr. Market thinks. You and I should expect significant volatility in the year ahead.
Expect Permanent Economic Change
Mr. Market, (by his very nature) is almost always forward looking. This tendency leads to moments of extreme optimism and relentless pessimism that is not always warranted. Recessions are (at times) deemed to be permanent, and economic booms are thought to be never-ending… until of course they aren’t.
Mr. Market is not perfect. He messes up sometimes, and may be missing the fact that our economy has permanently changed due to COVID-19.
We’ve all formed new habits in 2020. Some good, and some bad no doubt. It’s almost certain that a few of these habits are going to persist long after we’ve taken the vaccine.
We live in a whole new economy. The changes are already starting to become visible:
* Physical retail shopping will probably never recover to the levels see before 2020. Online shopping got a huge boost from the pandemic and it’s unlikely to ever give that up. Malls and retail stores will continue to lose ground to online shopping.
* Travel is going to take a really long time to come back. Most travel businesses (if they aren’t profitable right now) will continue to bleed money for the foreseeable future. It’s going to take time to get 6 billion people vaccinated, and even longer for international travel to open up again.
* The movie theater business is almost certainly headed for a shakeup. Some theater chains will probably go bankrupt. With theaters being shunned by consumers, media companies literally have no choice but to release films to streaming services first (instead of theaters).
* Many companies are now allowing employees to work from home permanently. Or, they’re moving to a “mixed” model, with some time in the office and some time at home. Less office space will be needed in the future. Home office remodels will be popular. Office REITs will probably suffer.
* Thousands upon thousands of workers will not be able to find work in their previous chosen profession. Demand levels have changed around the globe. This means longer-term unemployment, training, and support are necessary to help displaced workers find new jobs. A second or third round of stimulus money could be necessary.
See what I mean? And those changes are only tiny scratch in the surface of changes that are taking place right now. There are probably dozens of changes I’m not seeing right now, that will effect both the economy and the stock market.
Change is never easy, but it does create opportunities. This new economy will create new winners and new opportunities amongst the carnage. Keep your eyes open and be ready to invest.
Mask-up and Hunker-down
I’m not saying all this to be negative of course, I’m simply saying it so we can prepare for what’s coming. Optimism is great, but everyone needs to prepare for a tough winter ahead.
While I wish I could believe in last week’s sudden “vaccine rally”, the facts point to considerable economic contraction in the months ahead. Don’t react to it. Maintain calm, and stay the course with your investing strategy (whatever that may be). We’ll get through this.
Staying healthy should be everyone’s first priority. So please — Wear your mask, wash your hands, and stay at home.