One Thing Leads to Another

It was quite a week, but I don’t have to tell you that. The markets reacted negatively to the record number of reported coronavirus cases coupled with the breakdown of stimulus negotiations. Ironically, earnings announcements have been coming in strong. You’d be forgiven if you didn’t know that as it hasn’t been widely reported in the media. Unfortunately, but completely understandably, attention is now fully focused on the election, which is only four days away, and the potential consequences of a sustained increase in coronavirus cases.

It is hard to overstate just how much the market is looking to the rising rate of coronavirus cases. This week both France and Germany re-imposed national lockdowns, the United Kingdom is on the verge of instituting stricter restrictions, and even Russia instituted a nationwide mask mandate. Obviously, the concern is that these actions will be embraced here, which could once again cripple our economy. One shutdown was one too many for a lot of people who either lost jobs, were furloughed for longer than expected, had to close shop for good, or simply couldn’t take the isolation and loneliness that accompanies the stay-at-home orders.

Attempts at reopening our economy have been met with modest success, but could come under renewed pressure as we now top 90,000 new cases a day and hospitals take on more patients than they are equipped to handle. Even though doctors and epidemiologists warned that the virus would pick up as the weather got colder, it seems people were caught off guard. The good news is that the economic data remains strong, for now, and momentum built up in the third quarter should continue into the fourth quarter. As an example of the pent-up demand, gross domestic product (GDP) grew 33% in the third quarter (at an annualized rate) and is expected to grow between 2.2 and 3.2% in the fourth quarter. Prior to the pandemic, GDP growth had been below 2% and was struggling to reach even that level.

That’s not to say that all sectors of the economy are doing well. As I’ve mentioned previously, the leisure industry continues to struggle with airlines, cruise lines, resorts, casinos, movie theaters, and amusement parks struggling the worst. Additionally, you may have noticed that the energy sector has been decidedly weak as people drive less, travel less, and demand in general has been anemic. While some consumer staples companies like Procter & Gamble have done exceedingly well due to its strong presence in toilet paper, tissue, and laundry detergent, other companies like Coca-Cola have done poorly due to the majority of restaurants having been shut down. Clearly there are winners and losers in our current economic environment. More recently the technology sector has come under pressure due to concerns over valuation and comparisons to the tech bubble in 2000. The fact is, while many of these technology companies have appreciated considerably this year, it is not unwarranted. Many of these companies provide the infrastructure, software, and hardware that allows employees to work from home, and by extension the economy to remain afloat.

I am not so complacent that I don’t recognize the unprecedented time we are going through. However, the issues we face aren’t structural in nature, nor are they permanent. While the coronavirus remains the largest threat to the economy, that will not be the case forever. Once the election is over and our next president determined, I expect some part of the uneasiness and despair will dissipate, and as we learn about the results of the various vaccine trials in late November and December, perhaps we can begin to look to a future without as much hand wringing. My hope is that we can look past the election next week, the results from the vaccine trials later this year, and unrelenting issues with COVID-19, to a time next year when we will return to our lives as they were before the pandemic, enjoy one another’s company without fear, and celebrate and embrace each other as life was meant to be.

Bruce J. Mason, MBA