Based upon the headline readouts, the surge in Delta coronavirus cases worldwide portends rolling economic blackouts reminiscent of the early days of COVID 2020. This fear rattled markets on Monday, pressing the 10-year Treasury yield down to 1.18% and the Dow down nearly 1000 points. Paradoxically, also on Monday, the UK fully reopened its economy despite its surging case rates and a Prime Minister in quarantine. Case rates may make headlines, but it’s fatality rates that provoke policy prescriptions. Fortunately, our vigilant vaccination of the vulnerable and Delta’s less-lethal temperament have limited fatalities and reduced policy pressures. Markets rallied to new highs to close out the week, recognizing that while COVID cases may climb once again, the worldwide economy will not shut down once again.
On Friday, the 2020 Summer Olympic Games (pandemically delayed) began in Tokyo with a breathtaking opening ceremony and few observers. To guard against impending COVID contagion, Japan banned foreign Olympic spectators in March and then banned their own domestic spectators on July 8th by declaring a national state of emergency. Markets responded immediately with yields plunging and a notable rotation away from the “re-opening” asset classes back into the “shutdown” asset classes. Investors and economists like us had to quickly revisit our pandemic playbooks and reassess our current risk/reward assumptions. Many “shoot first, ask questions later” investors hit the exits Monday, leading to a jarring 950-point drop in the Dow. And yet, by week’s end, stock markets hit new all-time highs. With Delta cases surging, shouldn’t this market be falling?
The proliferation of the highly contagious Delta virus has led to a surge of COVID cases in Japan. Using a 7-day rolling average, daily case counts in Japan have risen from a low of 1,400 a day in early June to nearly 4,000 today. Case counts approached 7,000 in January of 2021 and again in May, making this the third COVID tsunami wave this year for Japan:
Given the surge in case counts, it’s a wonder the Japanese didn’t cancel the Olympics altogether (as many called for). Perhaps they tempered their reaction to rising daily case rates given the continual decline in daily fatality rates:
Recognizing that fatalities lag case identifications, perhaps the worst is yet to come for Japan. Maybe. But maybe not. While only 23% of Japanese citizens have received both vaccine doses, 62% of seniors are fully vaccinated. According to our own CDC, the unvaccinated account for 99.5% of US COVID fatalities. Therefore, Japan’s high vaccination rate among its most vulnerable should dramatically improve its fatality rate. COVID case counts sound alarms, but falling fatality rates greatly de-amplify them.
The UK has waged the most visible war against the Delta variant and began its battle well before Japan. Revealing Delta’s hyper-contagiousness, Britain’s COVID case counts rose from 1,500 in late May to nearly 50,000 in July.
Britain’s dramatic surge in cases occurred despite its world-leading 55% vaccination rate. Fortunately, as found in Japan, fatality rates, while rising, are still near pandemic lows.
Delta has dawned in the US. Recent case counts likely underreport what will surely be a sizable surge as we head into fall:
Fortunately, like the UK, the US has vaccinated over 50% of its population. Better yet, 90% of US citizens over 65 have had at least had one vaccine dose. While Delta may have just begun spreading here, we should take great comfort in the low fatality rates seen previewing in Britain and Japan. Currently, the US fatality rate sits close to pandemic lows:
Finally, and optimistically, Delta’s high transmission rates mixed with reinvigorated vaccination rates should accelerate our human pursuit of herd immunity, and perhaps even usher in… COVID’s coda.
Have a great Sunday!
David S. Waddell
CEO, Chief Investment Strategist