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Covid 19 Second Wave and Stock Market


As COVID-19 cases continue to rise in the United States, it has left investors wondering what impact this could have for the stock market in coming months.  In this article we are going to review:


  • Key Indicators To Track
  • Impact of A Second Full Shutdown
  • Chances of A Double Dip Recession
  • Status of Vaccines And COVID-19 Treatments
  • Government Stimulus Programs In The Works


Key Indicators To Track


We are not completely dismissing the traditional economic indicators such as unemployment rates, GDP, manufacturer’s index, and consumer spending habits. While we are in uncharted waters with this global pandemic, those indicators still allow us to piece together the US economy‘s timeline to recovery. However, it is hard to deny that COVID-19 tracking data such as daily infection rates will have a material impact on the decisions that investors will make in the coming months. From the experts we have spoken to, while daily infection rates would seem to be the most important, the more important data is the hospitalization rate and the number of people in the ICU.


You could potentially have a lot of people getting infected with COVID-19, but as long as they are able to recover before the virus becomes life-threatening, it would indicate that the COVID-19 treatments are working, and the health system is getting better at treating the virus in the early stages. However, if we see hospitalization rates spiking, and the number of people in the ICU increasing dramatically, that could increase the likelihood of another fall shut down in various states, extending the time to recovery.


The numbers are not great right now. The hospitalization rate is just over 80,000, which is much higher than the previous two peaks from earlier in 2020.


COVID 19 infection rate


If this trend continues, it could put the capacity of the US health system to the test, and it could dramatically increase the number of daily deaths that we are currently seeing from the pandemic.


Government Stimulus Programs


If the current trends continue and the US elected officials determine the best way to reverse the trend is another full shut down of the economy, US citizens and businesses would most likely need support from the government to weather a second shut down.  Prior to the presidential elections, Congress was working on a second stimulus package which included another round of checks to be sent to individuals below certain income thresholds, a second round of PPP loans to businesses, state aid, and additional unemployment benefits.


A few quick notes about the stimulus programs. In the preliminary legislation, we did not see any changes to the income threshold to receive the checks from the IRS, but the amounts could potentially be different. This means if you received a check the first time, you will most likely receive a check in the second round. There were several changes made to the criteria of small businesses to receive PPP loan money. Businesses now would have to show a percentage of loss revenue during a specified period to be eligible for the second round of PPP loans.  For the unemployment benefits, the primary legislation suggests that it will be a lower bonus amount than the previous $600 per week.


The largest clear and present danger to the market is if the economy goes into a second shut down and Congress is not able to agree upon terms of a second round of stimulus to aid US citizens and businesses. Time will be of the essence, and if Congress waits too long to act, irreversible damage could be done to the US economy, which may prolong the timeline to recovery.


With that said, if Congress is able to provide the economy with the aid it needs to bridge the gap between where we are now to the beginning of the post COVID-19 era, the market could respond very favorably to that environment, even though the news headlines will be ugly in the coming weeks.


The Market Is Forward-Looking


Through all of this, we must remember that the stock market is a forward-looking animal. As we have seen in the past, while the news today may be bad, if the market sees light at the end of the tunnel, it will not necessarily prompt a huge sell off knowing that relief is on the way. As COVID-19 treatments and vaccines continue to gain approval for emergency use, it could provide the market with that reinsurance by mid-2021. The US economy could be on its way to a meaningful recovery, but as I mentioned above, that also assumes that the government will be willing to step in and provide financial support if an economic shutdown takes place in the coming weeks or months.


What does this mean for investors? If you have a long time horizon, it is important to keep your long-term perspective, even though the markets may gyrate in the short term.  For conservative investors, it is acknowledging that there are still a lot of variables that have yet to play out over the course of the next few months, and maintaining the appropriate balance between risk and return within their portfolio is key.


Chances of A Double Dip Recession


What are the chances that the market takes another big dive like we saw in March and April of 2020?  Based on the information that we have gathered, in my personal opinion, the market could experience a sell off or two before we are on the other side of this pandemic, but I would be surprised if it is of the magnitude that we saw earlier in 2020.  The reason for this being, we are most likely towards the end of this pandemic versus the beginning or the middle. During the big sell off at the beginning of 2020, the S&P 500 index dropped by 34%.  The market at that point had no way to know what was on the horizon because the virus had just arrived, we were learning about it as it was spreading, and there were no treatments in the works, so the market had no way of forecasting what the timeline could be to recovery.  It seems like we are in a much different environment now even though the US Economy faces the threat of a second wave.


A recession is defined as two consecutive quarters of negative GDP growth.  If we get a full shutdown of the US economy in the coming weeks or months, it is not off the table that we could have a negative GDP reading for the fourth quarter of 2020 and the first quarter of 2021, technically classifying it as a double dip recession.  Only time will tell.


Status of COVID-19 Vaccines And Treatments


It is encouraging that new treatments and vaccines are being approved by the FDA on almost a weekly basis.  The challenge becomes the level of production needed, and the distribution of these treatments to the US population. we have to acknowledge that some of these treatments have their own challenges.  One of the vaccines that was recently announced has to be stored at a negative 70 degrees Celsius, which is a lot colder then your typical commercial freezer.  Special trucks would need to be built to transport it, and special freezers would have to be built and installed to house the vaccine. It also becomes a question of how long the vaccination will last, of if COVID-19 mutates, thus rendering the current vaccines less effective.  There are still a lot of question marks even though there seems to be hope around the treatments that are being released now.  The positive note is there is both treatments being created for those that have been infected by the virus while at the same time vaccines are being developed to help people from getting the virus in the first place.  The stock market will undoubtedly be watching closely to how effective these treatments are at treating the virus, and in turn painting a picture as to the timeline did the economic recovery post COVID-19.


Michael Ruger

About Michael………

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

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Investment advisory services offered through Greenbush Financial Group, LLC. Greenbush Financial Group, LLC is a Registered Investment Advisor. Securities offered through American Portfolio Financial Services, Inc (APFS). Member FINRA/SIPC. Greenbush Financial Group, LLC is not affiliated with APFS. APFS is not affiliated with any other named business entity. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not ensure against market risk. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.