Investing Breakout Staff Writer | March 1, 2021

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Although last week’s news about the Pfizer vaccine pushed markets up to new all-time highs, they have since struggled somewhat to regain those top levels.

Surprisingly, even Moderna’s Monday announcement of another competing 95% effective vaccine couldn’t stage an effective push back into the stratosphere.

That pattern is remarkably similar to the range bound action we saw from August on through Election Day, just in a much shorter time frame.

Source: Bloomberg

The existential force holding the market back right now isn’t a stranger to any of us. At this point, a better analogy might be more like a very unwelcome house guest.

But this second wave of new COVID-19 cases is the largest we’ve seen to date. More concerning, however, is the simultaneous uptick in hospitalizations, which is causing concern about once again overloading available capacity.

Source: COVID Tracking Project

Moreover, this particular second wave appears to be clearly centered on the United States, as cases in Europe, Asia, and the rest of the world are either flat or on the decline.


Source: Bloomberg, Johns Hopkins

Although public health response in the US will vary from state to state, we already know that governments will intervene when cases start to get out of hand. Both the United Kingdom and France, for instance, were recently compelled to issue stay-at-home orders as their hospital systems filled up to the brim.

Source: Financial Times

Compared to the rest of the world, the United States has been comparatively lax in its stringency, choosing mostly to reduce close-quarters capacity rather than force citizens to stay at home.

But that’s changing as case levels become problematic.

Source: COVID Tracking Project

New Mexico, currently experiencing one of the worst-per capita outbreaks in the country according to the chart above, closed all non-essential businesses last week and recommended citizens stay home to avoid infection.

Just yesterday, New York City Mayor Bill DeBlasio shut down schools as test positivity rates increased above the 3% mark.

That same day, Ohio Gov. Mike DeWine ordered a 3-week statewide curfew after the state reported more than 7,000 new COVID-19 cases.

All of these actions are naturally going to have an impact on consumer behavior.

Mobility data – which we have been tracking for some time now – absolutely plummeted in Europe as the virus resurged and governments issued stay at home advisories.

Source: Bloomberg

So, the United States, which has been flat at around -10% year-on-year, should expect something similar. Only two states (OH and NM) have issued stay at home orders or curfews thus far, while five others (CA, MA, RI, WIS, KY) have issued advisories, as per the chart below.

Source: New York Times

That is almost certainly going to increase over the coming weeks just based on current case counts. But moreover, infection rates will intensify as people spend more time inside. And to borrow a phrase from Game of Thrones…

Winter is coming.

Jobs Data Already Showing Cracks

Caseloads are already starting to have a negative impact on unemployment figures, as initial jobless claims came in 6% higher than expected, at 742,000 for the week of November 14th. And while Pandemic Unemployment Assistance claims came down by 750,000 there were increases in both PEUC and extended benefits that offset that decline.

Source: Bloomberg, US Department of Labor

Also, we know from prior experience that as new cases rise, new unemployment claims rise.

Source: Bloomberg, US Department of Labor

So, if the stock market is going to continue to make new highs, it is clearly going to have to work its way through a ton of bad news over the next month and a half.

And although most analysts (including this one) expect a comparatively better 2021, the path to get there is likely to get rocky. So much so that Bill Ackman – of “hell is coming” fame – recently put on a sizeable hedge position in case of a “tragic” end to 2020.

To that end, I think it’s prudent to add a ½ tranche to the iPath Series B S&P 500 VIX Short-Term Futures ETN (BATS: VXX) as the price is cheap, downside is limited, and upside remains enormous. And of course, if nothing materializes by early 2021, rolling it into a different position is always an option.

But with joblessness starting to pick up along with new COVID cases and Federal pandemic unemployment assistance set to end on December 31, I do not anticipate an increase in consumer spending over last year.

And given that consumer spending constitutes roughly 70% of GDP, that means US growth will contract once again. That means that in turn, to once again paraphrase Game of Thrones… recession is coming.

Stay safe, everyone.

All the best,

Matt Warder

Venture Society

This article is supplied courtesy of