“The COVID-19 recession is over,” said Mark Zandi, the Moody’s Analytics chief economist, last week. But then he added a qualifier: “Barring… a major second wave, or real, serious policy errors.”
In other words, if the world avoids events quite likely to happen — with a probability significantly greater than 50% — the COVID-19 recession is over.
This is head-scratching logic, but the market appears all in. Through the power of magical thinking, the virus is being wished away. In the face of all odds, the V-recovery is being willed into existence.
Evidence the recovery is being taken seriously can now be found in the bond market.
The yield on the U.S. Treasury 10-year note rose substantially on Friday, breaking out of a multi-month range. The 30-year bond yield also charged higher, in response to a shockingly strong jobs report.
The trouble is, the novel coronavirus hasn’t gone away. It hasn’t even slowed its spread.
Memorial Day (May 25) was a milestone for America’s reopening. New COVID-19 cases have more or less been rising since then.
The daily rate of new reported cases in the U.S. hit a peak on April 10, CNBC reports, and declined to an eight-week low on May 28. From that point the numbers started to rise again, and the seven-day moving average has turned upward.
In various states the numbers are climbing. According to the Johns Hopkins Coronavirus Resource Center, on June 3, Florida reported its highest number of new cases in a single day since April 23. Then on June 4, its reported cases were higher still.
Nor is it just Florida. “Texas, Arizona, and Oregon saw significant spikes last week in new coronavirus infections,” Axios reported on June 4, “while cases also continued to climb in a handful of states where steady increases have become the norm.”
New cases are rising globally, too.
Some countries, like Egypt and Brazil, had assumed at one point that the pandemic had passed them by. Now COVID-19 caseloads are exploding there. The Brazilian death toll, well above the 36,000 mark, has surpassed Italy’s. In Russia, COVID-19 cases seemed low or even absent for the first few months. Now Russia has the third-largest outbreak in the world on a reported-numbers basis, with more than 476,000 cases. In Iran, a spike of new cases is comparable to the March peak.
In Asia, meanwhile, countries that appeared to have beaten the virus — China, Singapore, South Korea — have struggled with new outbreaks and initiated new lockdowns in various areas.
“Herd immunity,” meanwhile, is still a far-off dream.
“Even in some of the hardest-hit cities in the world,” the New York Times reports, “the vast majority of people still remain vulnerable to the virus,” citing studies that show the New York City novel coronavirus antibody rate below 20%, the London rate below 18%, and the Stockholm region below 8%.
What that means is that even in New York — an area brutally hit by COVID-19 cases — more than 6.7 million New Yorkers, or 80% of the total population, are still vulnerable to infection.
For less-densely populated areas of the country, the antibody rate is likely to be far lower, and probably still in the single digits. That in turn means the virus is still very early in its life cycle, due to a downshifted, but still steady, rate of spread outside major metro areas.
As a further point of concern, the COVID-19 rate of spread could soon pick up dramatically in the United States as a result of coast-to-coast protest rallies and riots.
Conditions that involve large groups of people, densely packed into a shared air space, most of them chanting or yelling for hours on end, are close-to-ideal “super-spreader” type events, where a single individual can infect dozens, if not hundreds, of others.
At the same time, there are reports of 10,000 or more protesters having been arrested, which means confinement in a tightly packed jail space. We have evidence now that meatpacking plants and prisons (permanent jails) have been two of the worst environments for the spread of COVID-19.
We also know that the Philadelphia Liberty Loans Parade, thrown on Sept. 28, 1918, was one of the single-worst mass-spreading events of the Spanish Flu pandemic 100 years ago. One could argue, in a way, that the protests of the past 10 days are comparable to an unbroken string of Liberty Loans Parades, in cities all around the country.
The caseload impact of the protests and riots will be delivered with a lag, as it generally takes five to 12 days for new symptoms to show up with an increased rate of spread. An uptick in fatality rates will be even more lagged, as it takes many weeks for cases to turn critical and then become terminal.
Put all of this together, and we are still in the dark as to where the virus will go next, or how hard the next load of COVID-19 cases will hit. But none of the given evidence is encouraging, and some of it is downright alarming.
Nor does any of this account for the natural tendency of influenza, as demonstrated over multiple past pandemics, to surge with a vengeance in the autumn of the year — an event that stock prices are now assigning a probability of zero.
Against this backdrop, the market’s willingness to behave as if the pandemic is a settled thing of the past seems, quite frankly, a form of willed insanity.
If America gets walloped by the virus again — a process that may already be unfolding — the reopening will not be successful; and even if no Western country implements new lockdowns, a rising level of fear and trepidation could easily destroy the optimistic case.
And yet, markets are not only behaving as if the V-recovery is in the bag, they are all but throwing in the existence of a perfectly proven and mass-distributed vaccine, which of course does not exist and likely won’t until mid-2021 (if we are fortunate).
It is all a bit nuts, quite frankly — but then, that’s par for the course for 2020.