This week was characterized by a further increase in the global spread of the virus. It weighed on investor sentiment, though to a lesser degree than we would have expected. We believe the response in the U.S. in particular and subsequent impact to the country’s economy will be key determinants in the weeks to come.

 

Coronavirus update

The spread of the virus worsened this week and served as a reminder that while some regions have successfully contained it, others are in the thick of the fight. Fortunately, Canada continues to see ongoing improvement. As a result, cities across most provinces within the country moved further along with economic reopening plans. The situation across most of Western Europe is also relatively stable. Russia has seen a levelling off of new daily cases, though the figures remain elevated. And China, which was grappling with a new outbreak in Beijing in recent weeks, has managed to contain the situation for now with a speedy and forceful response. That is the extent of the good news.

 

Elsewhere, the picture is less reassuring. Brazil and Mexico continue to be hot spots in South and Central America. India too has seen another week of record new daily cases. Some countries throughout the Middle East and Eastern Europe are seeing an acceleration in cases forcing governments to reevaluate their plans. And lastly, Indonesia and the Philippines saw some of their biggest daily increases in months.

 

The U.S. is where most have intensified their focus. The economy has shown signs of momentum over the past several weeks and there were expectations this would continue. But, virus trends in the country are now firmly heading in the wrong direction and pose more of a risk to the recovery than a few weeks ago. There is some nuance to the data. But, at a high level, the country is averaging more than 35,000 new daily cases, nearly double the daily level it had seen over the past month. Furthermore, the pandemic has become more widespread in contrast to the situation a few months ago when the state of New York was largely responsible for much of the country’s case load.

 

Some of the U.S. increase is likely a result of higher testing. We have also seen evidence that suggests a higher amount of the newly infected in some states are meaningfully younger. This may help explain why hospital admissions and mortality rates nationally haven’t necessarily followed the new case load meaningfully higher just yet. Nevertheless, it has become increasingly apparent that the spread of the virus is escalating and may need to be addressed.

 

The U.S. response

Many states had moved to reopen their economies over the past month. We expect some may have to revisit these plans. In fact, Texas already announced that its lifting of restrictions will have to be halted for the time being. Moreover, we expect some will have to consider adopting more organized, coordinated, and intrusive approaches to limit the spread of the virus. Some of the tactics could range from targeted regional restrictions and lockdowns, to increased testing, contact tracing, wearing of protective equipment, social distancing, quarantining, sheltering of vulnerable populations, and others. Each state may employ different combinations of the above but we suspect few will employ the strict lockdowns that were undertaken in some jurisdictions previously, unless it is deemed absolutely necessary.

 

The prospects of more government intervention will undoubtedly be frustrating to many consumers, businesses, employees, and governments themselves. Parts of the country have already endured forced shutdowns and many were hoping the worst had already passed. Naturally, there will be some resistance to the measures that may have to be taken. Ultimately, we hope people accept and adhere to the rules, policies, and suggestions until signs of containment emerge.

 

The economic momentum in the U.S. may be at risk of waning, at least to some extent. This is in-line with our general expectation that the path of recovery was never going to be easy and would be uncertain and uneven. Our long-term investment approach is prepared for this and will not waver regardless of what transpires in the near-term.

 

Should you have any questions or concerns, please feel free to reach out.