Advisor Talking Points: The Economy & A Second Wave

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After almost a month of stock market gains, the S&P 500 Index saw several days of sell-offs last week.  The market cannot go straight up forever, and this was a normal and healthy pullback after a long stretch of performance.

According to the press, investors were worried about the rising rates of hospitalizations in some parts of the U.S. and the effects of the Memorial Day festivities and national protests on new Coronavirus infections.

Whether or not the news justified the market pullback, it seems like investors decided that they had overreacted. On Friday, the S&P 500 Index climbed 1.3%.  The Dow Jones Industrial Average ended the day up 477 points—almost 2%.  It was a good session for anyone betting on a recovery.

Year-to-date, the S&P 500 Index is down -5.8%, and for the past year, it is now up 5.6%. The tech-heavy NASDAQ index is up year-to-date at 6.9%, and it is currently up 23% for the past year.


There Is Also Good News As The Economy Reopens

Just as the shutdown happened almost simultaneously around the world, the reopening of businesses is also happening simultaneously.  Asia started opening up about six weeks before America, and so far, so good.  There have been flare-ups and second waves in some cities, but they have been manageable and are being contained. 

Here are a few notes from last week on the nationwide reopening:

  • Unemployment dropped dramatically more than projected last month.
  • After 100 days, NYC’s Phase 1 reopening could mean 400,000 workers returning to jobs.
  • Americans are booking Airbnb again, seeing a surge in domestic family vacations.
  • JetBlue says it will fly about 50% of its July schedule, and a higher amount in August.
  • Other airlines have seen a surge in bookings.
  • Dunkin’ announces it is hiring 25,000 new employees.
  • Europe and Asia have reopened without any significant surge in virus cases.
  • The University of Michigan’s Consumer Index rose to 78.9 from 72.3 for the previous four weeks.
  • Fed Chair Jerome Powell said he believed Congress would pass another large stimulus package in July.
  • Retail sales are up, and industry trade groups are reporting improved demand in many beaten-down industries, according to Barron’s.


Reopening—A Second Wave—Public Health & Lives Lost?

I continue to receive thoughtful comments from both investors and financial advisors on how we can ethically reopen the economy if the result is more lives lost to the Coronavirus.

As I have pointed out before—we have to do both.  We have to reopen the economy AND, AT THE SAME TIME, protect those who are most at-risk of hospitalization and death.

With little national leadership and different reopening rules in every state, the reopening of U.S. businesses has seemed haphazard at best.

As a country, we have done a horrible job of protecting those most at risk of being hospitalized and dying from the virus. 

For example, 42% of deaths in New York, and over 50% of deaths in many states came from nursing home patients.  We could have cut the death rate in America from the current 118,000 U.S. deaths by 40% to 50% if we had just focused on protecting nursing home patients.  That would have been far less expensive than sending every American a $1200 check.

According to the CDC, there are approximately 15,600 nursing homes in the United States, with 1.4 million patients.  The government and the owners of these facilities have completely failed their patients.

Hong Kong has approximately the same number of nursing home patients per 100,000 population, as does the United States.  However, they have not had one Coronavirus death attributed to a Hong Kong nursing home.  Some years ago, after the SARs virus, Hong Kong strengthened nursing home health standards, testing and mandating that every patient has their own room.

The U.S. could have prevented 40% to 50% of all deaths if we had implemented the same protocols.


Focus On Hospitalizations—Not New Cases

The vast majority of new reported cases are due to increased testing.  Those infection rates were always there; we just didn’t know about them because we were not testing.  Now that we have dramatically increased testing, there are more confirmed new cases.

The CDC believes that about 43% of all people infected with the virus have no symptoms or have mild seasonal cold-like symptoms.

We also know from CDC data that over 80% of those infected will have either no symptoms, flu-like symptoms, or more severe pneumonia-like symptoms—but all will recover at home and never go to a hospital.  After infection, they may also have some antibody immunity against the virus for some unknown period.

Only about 20% of those infected will be hospitalized and possibly die.

The U.S. government should be spending more money protecting those at-risk individuals who are most likely to overwhelm hospital systems and risk death.

The at-risk people are (1) almost all over 60 years of age with preexisting medical issues (including nursing home patients) and (2) there is a second large group of at-risk individuals who are African Americans and Hispanic Americans with preexisting medical conditions associated with high blood pressure, cardio issues, diabetes, and obesity.

Many epidemiologists now believe that if the government had focused a substantial amount of the stimulus money on these at-risk groups of people, we could have substantially reduced the number of hospitalizations and deaths.  And we could have done it without stopping people who are not in these at-risk populations from going to work and leading a more normal life.


Here Are The Current U.S. Coronavirus Statistics:

Press reporting of the Coronavirus crisis often overlooks the mundane trends and statistics for the more sensational stories they know are liked by viewers

For example, over the Memorial Day weekend, many network newscasts showed a video of several hundred people partying in a large pool in the small town of Lake of the Ozarks, Missouri.  Doctors and commentators were interviewed and predicted a massive upswing in new cases, hospitalizations, and deaths because of the pool party.  As of last Friday, only two new cases have been confirmed from party attendees, and both have recovered from flu-like symptoms.

Another example was the coverage of serious new cases of children having severe Kawasaki Disease symptoms from being infected by COVID-19.  There were several deaths, but most of the reporting failed to mention how rare it was for children to be hospitalized and die from COVID-19.  Only 0.01% of all COVID-19 deaths were attributed to children under the age of 15.  The virus can infect children, but it is rare, and almost all recover.

Here are the mundane statistics as of Friday, June 12, 2020:

(Source: Johns Hopkins University; CDC; Worldometer)


The above chart shows that daily new cases in the U.S. are flat.  Many epidemiologist attribute the finding of new cases to increased testing.

(Source: Johns Hopkins University; CDC; Worldometer)


The chart above shows new hospitalizations in the U.S.  This is an important chart.  Overwhelming local hospitals is everyone’s nightmare.  The chart shows increases in hospitalizations of people over 50.  It also shows little to no growth for people under 50.

(Source: Johns Hopkins University; CDC; Worldometer)


This chart shows the trend in daily deaths.  The trend is going down.


How Do You Strike A Balance Between Economic Life & Actual Human Life?

The economist and philosopher Amartya Sen has said, “the presence of disease kills people, and the absence of livelihood also kills people.”

Unfortunately, there are no perfect answers and no complete solutions when you have an overwhelming crisis like this pandemic.

We have to get more comfortable talking about risks and trade-offs and the ethics of our decisions about reopening the economy and the possibility of new virus breakouts and deaths.

We also have to get beyond the polarizing debate of choosing between treating the virus and reopening the economy.  We need to do both—and we have to do it in a smart way!  We have to continue to fight the virus, protect those most vulnerable to death and hospitalization, and at the same time, reopen the economy.

We also have to develop more sophisticated tools to fight the virus rather than the crude, blunt force orders of completely shutting down the economy for everyone.

We need “Pandemic Pragmatists,” who can balance the joint priorities of reopening the economy and fighting the virus and protecting those most at risk of death.

There will be compromises—there always are—between doing everything possible to save those most at risk of death and restarting normal life for the rest of society.


NOTE: This report is authorized for distribution to clients

Paul Dietrich is the Chief Investment Strategist for B. Riley Wealth Management. B. Riley Wealth Management offers comprehensive financial solutions to clients through its network of over 160 experienced financial advisors across 13 states. The firm manages more than $11 billion in client assets and serves approximately 34,000 client accounts.

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