Chart of Interest – A Turning Point?

For over a year now, capital markets have looked at global financial data through a lens necessarily considering the potential consequences of politics and health conditions.  With the US elections now behind us, the likely path of political actions is becoming clearer.  Questions regarding additional stimulus have moved from “if” to “how much” and expectably during the first quarter of 2021.

If the historic playbook holds true, another stimulus injection will translate to an upward bias for risk assets, i.e., stocks.  This could also lead to rising interest rates, which, at current levels would not initially be particularly problematic.  But investors need to remember that rising rates are not a problem until they are.  And we typically only know in hindsight when that shift occurs.

But what about the impact on the capital markets of the ongoing COVID-19 pandemic?  The global economy has exceeded expectations in its ability to navigate this pandemic and, while the costs have been harsh and real, economic conditions have fared much better than initially expected.  Yet, there continues to be a “fragility” in the markets regarding the still unknown way in which this pandemic may ultimately play out. 

The world has waited expectantly for an optimistic breakthrough that may create conditions leading towards meaningful and sustainable improvement.  And now, the distribution of vaccines has offered hope that we have turned the corner, yet still with guarded optimism.  Has this step begun to move the needle?

While still early, the data below from The COVID Tracking Project at The Atlantic shows an encouraging turn in U.S. trends measuring COVID-19 metrics as vaccines become more widely distributed.  As testing continues at a high rate, the seven-day average of daily cases has begun to meaningfully decline.  And, while not as pronounced, hospitalizations and deaths also look to be showing optimistic signs of improvement as their trends also look to be rolling over.

Should these pandemic trends continue to improve while the political landscape becomes better understood, two major uncertainties will have begun to recede, giving investors better visibility into the health of, and opportunities within, the global economy and capital markets.  While maybe a small step, an important one in the right direction.

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