THE STOCK MARKET’S MISPLACED OPTIMISM.
Stocks soared this week on COVID-19 vaccine news and an anticipated fiscal stimulus package from the Joe Biden administration. While welcome developments, neither is a silver bullet.
Stimulus will help and is certainly needed, because the pandemic is far from over. Masks, distancing and economic hardship are going to be around for most of 2021, and possibly beyond.
So far, three impressive vaccines have been announced, but distribution and acceptance levels are question marks. Only limited amounts will be available to first- responders and some at- risk groups within the first quarter of 2021, but further supplies will roll out over the course of the year. Canadian supplies will be delayed because our government is behind the eight ball in securing them, and we have no domestic vaccine production capacity anymore.
The average American won’t start getting access until mid- to late 2021. The rollout will take months and until hundreds of millions of doses are administered, people must abide by public health constraints, including face- coverings, handwashing and distancing. Worse, there are concerns about polls that show that a high percentage of Americans will refuse to get the vaccine.
Another problem is that the first vaccine that’s likely to hit the market, produced by Pfizer, requires special freezers. This means availability will be restricted to specialized clinics and hospitals, not local drugstores or doctors’ offices — a reality that will make mass inoculation logistically difficult and time- consuming. Besides that, most of the vaccines under development will require two doses, which makes compliance more challenging.
The biggest question mark surrounds effectiveness. If these vaccines are no more effective than seasonal flu vaccines, which are only as high as 60 per cent most years, then the virus will continue to spread. We also don’t know how long immunity will last.
Another unknown is whether vaccinated people can still transmit the disease. The worst- case scenario is that the vaccinated don’t get sick, but remain spreaders.
Fo r t u n at e l y, rapid COVID- 19 tests will help by allowing individuals to immediately determine whether they are infected. Such tests can help prevent spread and drive more people toward vaccination or isolation.
Given these unanswered questions, it’s hard to justify the stock market’s leap in general, and certainly in airline and cruise stock prices in particular. Even if vaccines are widely adopted in the United States and Europe, travel restrictions will continue for years.
Oxfam has estimated that 61 per cent of the global population won’t have a vaccine until at least 2022. That means inflows of immigrants, workers and visitors must be policed, and that world travellers will have to take extra precautions for years to come.
And mutations may spring up, too. This is not the last pandemic that will afflict humanity due to overpopulation, overcrowding, a laissez-faire approach to vaccination and poor sanitation around the world. Infectious diseases already account for one- third of all deaths worldwide.
The new normal is uncertainty, which is a nightmare for businesses, big and small. Bankruptcies and consolidations will continue to dog retail, restaurant and hospitality sectors, and commercial real estate will be devastated as many workers will insist on continuing to work remotely. Office towers will empty gradually and permanently.
Things will get better in the long run, but there is a lot of work to be done in order to get us there. And that’s where science and stimulus come in.
Warren Buffett finally commented on the crisis recently, saying, “I would recommend the Republicans, Democrats, whomever, go to work to help small businesses because they are the future of this country.”
A roaring stock market does not a recovery make, but optimism that the world is at the beginning of the end of COVID-19 is certainly welcome news. Yet given all the unknowns, and human nature, it feels at this point more like the beginning of a new beginning.