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Mind on Money: Expect the unexpected
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Mind on Money: Expect the unexpected

Market action week was a bit of a wakeup call for investors who may have gotten complacent during the sustained summer rally we are enjoying. Coming out the gate on Monday the widely watched Dow Jones Industrial Average gave up 725 points (source: CNBC) and was accompanied by yields on the 10-year U.S. Treasury bond sinking ever further to under 1.2% (source: Bloomberg). Action on both fronts is clearly indicative of a “risk off” sentiment on Wall Street.

Over my 27-year investing career, I’ve come to believe most short-term market action is largely self-causational, meaning markets go up and down mostly because its time for markets to go up and down. But randomized daily trends occurring for no particular reason doesn’t sell newspapers or grab eyes on screens, so never have I heard a market report in the press saying stocks simply went up or down because they were determined to go up or down on a particular day. Daily market reports almost always lead with “stocks did something because of something.” On Monday this week it was “Markets sink as investors grapple with the new Delta COVID variant.”

Like everyone else, I suffer from severe COVID fatigue, and like everyone else, I’ve been hearing about the Delta variant in the news for weeks now. Through my journey becoming an unwilling, self-educated, amateur virologist who knows just enough to be puzzled over the past 18 months, I did learn that COVID-19, being a coronavirus, would very likely mutate into new strains as it moved through populations.

So, I wasn’t surprised to start hearing about the new variant, and I quite honestly was only slightly interested in any more COVID learning. I filed Delta into the “sensational headline” category and decided not to devote any mental bandwidth to it. With the stock market sinking 3% in one day, and Delta getting the blame, however, I thought I should probably do a little studying, because after all, if it's my job to help manage risk then I need to remain informed.

I find most of the percentage-based headlines on Delta spread to be less than useful. Headlines such as “Delta Variant Responsible for 50% of New COVID cases” doesn’t really tell me anything without looking at actual infection numbers. As an example, if there were two new COVID cases yesterday and one was a Delta infection, that is 50% of new infections, but the useful news from my perspective would actually be that there were only two new cases, so percentages are uninformative to me.

In addition, from a market risk perspective I believe the primary risk is not represented by COVID infection rates, but rather by aggregate new COVID cases. This is because COVID infection itself, in my opinion, does not represent the true fundamental risk to the economy, the true economic risk is rather inherent in government response to COVID spread. Or to put things simply, what is the likelihood of new lockdowns, even if those lockdowns are regional in the U.S.?

When the CDC numbers (source: CDC.gov) are viewed in this perspective, COVID infection is ticking higher in the U.S. over the past couple weeks. From an extreme low of about 4,600 new cases nationwide on July 3, to more than new 55,000 cases as of July 19. It takes no stretch of logic to appreciate the role of the July 4th holiday in this short-term trend, and interestingly the new infection numbers on July 19, 2020 were 62,000, only 7,000 less than July 19, 2021, and that was with many regional lock downs and mask mandates still in place, and vaccines not yet rolled out this time last year. Last year at this time however, the 7-day average of new cases was trending lower, while this year it is moving higher.

So, with its more infectious nature, perhaps the Delta variant is supporting this new trend. In my opinion, having just come off the holiday the data is still a bit myopic, but it bears watching at this point, and maybe the market headlines from Monday had some validity this time.

My gut feeling is lock downs are a thing of the past, but if there was one overriding lesson from this pandemic it is to dispense with the pre-conceptions and expect the unexpected.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing includes risks, including fluctuating prices and loss of principal. Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com. Securities offered through LPL Financial, member FINRA/SIPC.

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