At PearTree Advisory Group, it is important to us that you are well informed about what’s happening in the markets. Here are a few of the key topics of conversation that we feel deserve the most attention this month. If you have any questions or would like to continue the conversation, let us know, and we appreciate the opportunity.
Summer is in full swing, and it has been a hot one so far!
While the S&P 500 relatively flat for July, there has been sector rotations taking place within the broader market. We are at the midpoint of the month, and July has been an extremely choppy month. In fact, equity markets have hardly responded to the fundamentally strong 2nd Quarter 2021 results.
We feel a lot of this chop is due to the markets digesting inflation numbers and the Delta variant of Covid-19. Nations around the world are seeing a rise in cases.
We have found the forecasts of the IHME (Institute of Health Metrics) useful in understanding the case change. The IHME models are used by policymakers around the world including the White House. Below is their last forecast for hospitalizations:
- Hospitalizations forecast to rise to 40,000 by November 2021
- This falls way short of the 140,000 figure seen in January 2021
- But is up from 15,000 in July 2021
The IHME is indeed forecasting more Americans getting hospitalized due to the Delta variant. However, this is hardly matching the surge seen in Wave 3 of COVID-19. Also, the healthcare severity of Wave 3 fell far short of Wave 1 and 2.
One reason for this is the USA vaccination made early efforts to target the vulnerable populations:
- Elderly Americans
- Americans with pre-existing conditions such as obesity, diabetes, and other risk factors
The NY Post wrote an article on July 16, 2021, reminding us that protecting the vulnerable was the most important action. This effort has been a success in the US. According to the American Diabetes Association:
- Diabetics make up 40% of USA COVID-19 deaths
- Diabetics are 10% of the overall population
So, the risks of severe outcomes are lower in the USA, simply because of the early vaccine targeting.
With COVID-19 case increases there seems to be a pattern emerging with the markets response. First react as investors fear the past COVID waves. Second, they find footing as cases stabilize and third, they get to a point of being de-sensitized to cases (not there yet). The Delta variant seems to be more bark then bite at this point. It has not yet rolled back re-opening efforts or reduced the buying activities of households. Although it has caused investors to get nervous.
I feel this is a set up for a favorable 2nd half. I don’t think July chop is ending this week. With this backdrop we will not be reducing our risk here. Tactically speaking, we will be watching for signs of an imminent reversal in the broader markets and within sectors. At this point the math is telling us this is a healthy correction after a very strong first half of 2021.