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The End of the Stock Market Rebound is Only One COVID Mutation Away

The bias towards the pro-cyclical view here has in part been based on the assumption of vaccine efficacy and the accelerating rate of vaccinations.

This is also the narrative which has been driving equity markets, with comfort taken from the fact that hospitalisations and deaths are diverging from cases in the context of the remarkably infectious Delta variant.

This remains the situation in Britain, for example.

The 7-day average daily new Covid case count in Britain rose from 2020 in early May to 47,696 on 21 July.


It subsequently declined by 45% to 26,104 on 3 August before rising again to 35,051 on 4 September.

UK 7-day average daily new Covid cases and deaths

Source: Public Health England

Meanwhile the 7-day average daily death count is up from 6 in late May to 112, though it remains 91% below the peak of 1,248 reached in late January.

As for  the total number of Covid patients in British hospitals, that figure  has risen from 872 in late May to 7,541, though still 81% below the peak of 39,254 reached in mid-January.

UK Covid patients in hospital and patients in ventilation beds

Source: Public Health England

Vaccination Rates are up, but are Vaccines Effective?

Meanwhile, the vaccination rate has picked up again in America over the past month as the message has gone out that the chances of avoiding hospital are much greater if a person has been double jabbed.

The 7-day average daily vaccination rate in America has risen by 85% from 507,020 on 20 July to 939,579, though remains well below the peak of 3.4m reached in April.

US 7-day average daily Covid vaccine doses administered

Source: Centers for Disease Control and Prevention (CDC)

There also remains the issue of how long the vaccines are effective for.

Israel is the country to monitor in this respect.

A report from Israel’s Ministry of Health on 22 July found that Pfizer’s vaccine protected only 39% of people from infection between 20 June and 17 July, down from 64% for the period between 6 June and early July and a previous 94% earlier this year before the Delta outbreak.

Also for those fully vaccinated in January, the efficacy is now only 16% while those vaccinated in April are still 75% effective.

Israel vaccine effectiveness by outcome and month vaccinated with second dose (20 June – 17 July)

Note: Based on cases from 20 June to 17 July 2021. Source: Israel Ministry of Health

The last point is the most newsworthy of all since it suggests that booster shots may be required every six months and not every year as in the case of flu.

And indeed 2.58m booster shots have already been given in Israel, the country which was the first to roll out vaccines.

Meanwhile, the positive point is that the Israeli data shows the Pfizer vaccine as still 88% effective against preventing hospitalisation and 91% against severe illness regardless of when the vaccine was taken.

COVID Mutations are the Big Risk to a Cyclical Stock Rebound

If all the above is worth highlighting, a concern remains a risk raised by the head of America’s Centers for Disease Control and Prevention (CDC), Rochelle Walensky, recently.

That is that the world could only be “just a few mutations potentially away” from a vaccine resistant virus.

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On this point, this writer’s attention was also drawn to a research paper referenced in the press recently (see Financial Times article: “Scientists warn as pandemic enters dangerous new phase”, 31 July 2021 and a study by Austria’s Institute of Science and Technology published in Scientific Reports: “Rates of SARS-CoV-2 transmission and vaccination impact the fate of vaccine-resistant strains”, 30 July 2021).

The paper’s conclusion is that the risk of vaccine resistant mutations rises when more than 60% of a population is vaccinated and other precautionary measures, such as mask wearing and social distancing, are lifted.

This, of course, is exactly what is happening now in many Western countries.

The study argued that when a “relaxation of non-pharmaceutical interventions” happened at a time when most individuals of the population have already been vaccinated the probability of the  emergence of a resistant strain is greatly increased.

The same report concludes that “a truly global vaccination effort may be necessary to reduce the chances of the global spread of a restraint strain”.

This is clearly much easier said than done.

This writer obviously does not have the required expertise to comment on whether such a conclusion has merit or otherwise; though it is said that partially vaccinated populations are breeding grounds for mutations because all other mutations are smothered but one that evades can then be dominant.

But what is clear is that such an outcome, in terms of the appearance of a vaccine resistant virus, would from a financial market standpoint blow up the pro-cyclical rotation trade.

It would certainly lead to more frenetic G7 central bank easing activity even if governments did not engage in renewed lockdowns, though the latter outcome of more lockdowns would have to be the base case.

The above is worth mentioning since, as noted by Mrs. Walensky, “the virus is smart”.

There is also the complicating factor previously mentioned here, namely that nobody can be sure for now where the virus originated from.

It is also the case that it is simply not reassuring that double vaccinated people are getting Covid, in what are bizarrely termed as “breakthroughs”, even if they are not seemingly getting seriously ill.

This certainly was not the outcome advertised when the vaccination rollout began.

For now 7-day average daily Covid cases are running at 624,161 globally, compared with a peak of 826,340 in late April, and daily deaths are running at 9,627, compared with a peak of 14,722 in late January.

World 7-day average daily new Covid cases and deaths

Note: Data up to 3 September 2021. Source: Johns Hopkins University

Meanwhile, the World Health Organization added last week another version of coronavirus to its list of “variants of interest”, the Mu variant, amid concerns that it may partially evade the immunity people have developed from past infection or vaccination (see The Guardian article: “WHO monitoring new coronavirus variant named Mu”, 1 September 2021).

The views expressed in Chris Wood’s column on Grizzle reflect Chris Wood’s personal opinion only, and they have not been reviewed or endorsed by Jefferies. The information in the column has not been reviewed or verified by Jefferies. None of Jefferies, its affiliates or employees, directors or officers shall have any liability whatsoever in connection with the content published on this website.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Grizzle hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

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Categories: Global Strategy
Christopher Wood: Chris is internationally renowned for his weekly institutional research newsletter GREED & fear. He has correctly identified all major global financial bubbles over the last 3 decades (US sub-prime crisis, Nasdaq technology bubble, Asian financial crisis, and the Japanese financial meltdown). He’s also the author of three highly acclaimed books: Boom and Bust, The Bubble Economy, and The End of Japan Inc. Since May 2019, Chris has been Global Head of Equity Strategy at Jefferies.
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