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Where COVID-19 Goes, So Goes the Markets

It’s been a dizzying 10 weeks or so and one thing has not changed: COVID-19 (and where it goes from here) will dictate much of what happens with all markets in all countries. Nothing can escape it.

What is it going to take for a recovery?

People will need to feel safe getting back to normal. Not some people, but the vast majority of people will need to feel safe. This leads businesses to fully open, to resume hiring, to sell things and then make money. The making money part is earnings, and expected future earnings are what drive all investment prices, whether it be stocks, real estate or anything else.

What is it going to take for people to feel safe?

Quite simply, people need to feel that if they return to their normal routines, there is an exceptionally low probability they will get seriously ill or die. There are three potential paths to this:

  1. COVID-19 runs its course (the easy way or the hard way),
  2. There is a treatment that substantially improves the mortality rate or
  3. There is a vaccine.

Let’s take a look at where we stand with these three scenarios.[1]

Can COVID-19 run its course?

There are over 500 mutations of COVID-19. It is unknown thus far if COVID-19 will mutate into something far more aggressive and deadlier or more benign. Could it perhaps ease up in the summer and return stronger than ever in the fall? Possibly. Could it subside in the summer and social distancing measures keep it at bay until a treatment or vaccine develops? Possibly. Could it relentlessly spread until 60% or so of the population has had it and we establish herd immunity? Possibly. Could it turn out that those who have antibodies simply get it again? Possibly. More on what this means later.[2]

What is the outlook for a treatment to substantially improve the mortality rate? According to the U.S. Food and Drug Administration, there are currently 144 active trials of therapeutic agents and another 457 development programs in the planning stages. Gilead’s remdesivir is on track to be approved for use in the European Union (even faster than in the U.S.) and could be prescribed all over the world inside a month. It is likely not the silver bullet everyone is looking for, but it demonstrates the speed with which a treatment that shows promise can be approved. The world is attacking this disease in ways that are unprecedented. Could we get an effective treatment soon? Possibly.

What is the likelihood of a vaccine?

One does not have to look far to find wildly different points of view here. Many epidemiologists argue that a vaccine may never happen. And one need look no further than Dr. Anthony Fauci himself to hear a grim assessment: “We will have coronavirus in the fall. I am convinced of that” and that the “ultimate game changer” would be a vaccine, but that will likely take “12 to 18 months”. Some scientists believe we may never get a vaccine. The United Kingdom’s Chief Medical Officer, Christopher Whitty, told a Parliamentary committee he was concerned a vaccine would be impossible to develop. For those looking to add to the doom and gloom, no coronavirus vaccine has ever been approved in the U.S. or U.K.

Others are far more optimistic, pointing out that while a vaccine being discovered, tested and approved in less than a year sounds impossible, one must also acknowledge that never before have so many resources, so much brainpower and so much money been thrown at a disease in such a short amount of time. Moderna’s phase 1 vaccine trial appears to have yielded very positive results. Do we already have the silver bullet and it is just a matter of speeding through the other phases? It is too early to tell. What we do know is the world is throwing everything, including the kitchen sink, at this.

Now, have I told you anything you don’t know already? Of course not, we all know this. I can hear you right now: “I’ve already wasted 3 minutes, Captain Obvious. Get to the point!”

Here’s the deal, though. We know all of this is obvious. We know that no one knows with certainty how this virus will unfold in the coming months, no one has certainty on when a treatment that improves the mortality rate will be discovered, and no one has any certainty around if and when a vaccine will come to market. So, what is the point?[3]

Without any certainty on any of these issues, no one can have any certainty as to the near