The COVID-19 pandemic has rocked our country in ways we didn’t (and couldn’t) anticipate. Life in the COVID-19 economy is singular; it is distinctly different than anything we’ve experienced in this lifetime. As we are all continuing to adjust to living in a COVID-19 world, the families that I work with are understandably asking, “Where do we go from here?”
In addition to health care worries, families are very concerned with the current state of the U.S. economy.
So, here’s how I see it.
The bad news: COVID-19 is really one big wave and is not going away on its own. Despite the official case count in the U.S. topping 5 million, new research out this week from MIT data scientist Youyang Gu suggests we are closer to 35 million cases (in reality) here in the U.S. Very simply, the horse is out of the barn until the health care and biotech industry can lasso the horse.
The good news: Our nation’s financial policymakers have met these unique times with a response on an unparalleled scale. There have been two prongs of fighting the economic fallout we’ve faced — the fiscal and the monetary.
On the fiscal side, Americans have received nearly $2.5 trillion in economic stimulus, much of it from the CARES Act. There’s proposed legislation to add another $1.5 trillion, and President Donald Trump just recently enacted new executive orders. As for the monetary piece, the Federal Reserve has provided over $5.2 trillion of help so far through the purchase of Treasury and Agency bonds and a variety of lending facilities. Ultimately, these two pieces add up to nearly $8 trillion in total financial support. If the new legislation passes, that will push the figure beyond the $9 trillion mark, a truly enormous bridge until the economy can fully recover.
The prayer: As for our prayer, it’s one simple word: vaccine. The U.S. government has already pledged to pay the top six health care and biotech companies nearly $7 billion to create and distribute a vaccine as quickly as possible. Let’s pray that we get an effective vaccine to our doctors and pharmacies soon. We will hear from these companies in the coming weeks and months as they receive phase three trial results and lobby for approval from the Food and Drug Administration.
Other concerns
COVID-19’s impact has manifested into an interesting stock market performance, as market returns have been heavily imbalanced toward one big sector — tech. The five largest stocks in the S&P 500 are primarily driving the overall returns for the index. As of last week, the top five companies by size are up an astounding 35%, while the remaining 495 companies are down 6%.
The takeaway here is that light is shining on just a handful of companies — businesses whose products and services are best suited for a stay-at-home economy.
Meanwhile, hundreds of solid, dividend-paying companies have lagged behind these growth behemoths. I don’t believe this trend will last forever. When the economy “normalizes,” the 495 also-rans will likely gain speed and close the gap. Financials, telecom, utilities, energy and health care are not going away any time soon. This is where you will find many of the long-term dividend-growing companies I still believe in.
Here’s another question I’ve been getting a lot recently: “Wes, what about the White House?” Any discussion of the economy must consider the possibilities surrounding November’s election.
Here’s my take: The election result will be an incredibly important event for market psyche and future tax policies. However, regardless of who ends up in the White House, their policies’ and executive actions’ impact on the markets will be overshadowed by a non-COVID-19 economy at some point.
It is true, however, that presidential elections influence markets. The question come Election Day is how long this sway will last.
History shows that markets prefer the reelection of incumbent presidents, whether Republican or Democrat, because their policies are already established and known. When incumbents lose, markets tend to wobble and go through a period of adjustment as they get to know the new commander in chief. But, historically, even if there is an immediate post-election selloff, the market ultimately sees a strong recovery following the swearing-in of a new POTUS.
The pandemic is public enemy No. 1, and its resolution will heal our nation in myriad ways — beyond what a single politician can do on his own.
And a final, critical question: Where do we go from here?
Remember, COVID-19 is not a three- or four-month problem like we hoped. The attendant changes to our lifestyles have been dramatic.
Think about where we work as but one example. More than 35% of the entire U.S. labor force is now capable of working from home, says a study from the Chicago Booth School of Business. That trend could continue in full. In 2017, only 5.2% (or roughly 8 million) of the U.S. employees worked from a home office. Post-COVID-19 could see 55 million people continue to work remotely. This adaptation is welcome news to many but doesn’t apply to industries still waiting to get back to normal. Think restaurants, hotels, travel and leisure.
So for now, this state of economic purgatory will continue until the arrival of what we’ve all been praying for — a vaccine. Once we get an effective vaccine, we can get back to unbridled commerce. Who’s ready to have some fun in 2021?
Wes Moss has been the host of “Money Matters” on News 95.5 and AM 750 WSB in Atlanta for more than seven years now, and he does a live show from 9-11 a.m. Sundays. He is the chief investment strategist for Atlanta-based Capital Investment Advisors. For more information, go to wesmoss.com.
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