After markets plummeted on Monday, with the Dow and S&P 500 dropping 2.1% and 1.6% respectively, investors and pundits were unanimous on the cause: the spread of the more contagious delta variant of the coronavirus.
“The emergence of this more highly transmissible Delta variant brought into question the sustainability of this reopening and the recovery,” Candice Bangsund, a portfolio manager at Fiera Capital, told The Wall Street Journal after the Monday session had ended.
The spread of Delta is worrying: 83% of new Covid-19 cases in the U.S. are now Delta infections. The more transmissible variant, combined with widespread vaccine hesitancy, has led new U.S. Covid cases to rise 55% over the last week. With the variant rippling through the rest of the world — especially in less-vaccinated countries in Asia, Latin America, and Africa — it looks increasingly likely that Covid-19 will persist for years to come.
Yet despite this bleak prognosis, U.S. stock market investors reversed course in the following days. On Tuesday, markets recovered lost ground, with the Dow jumping 1.6% and the S&P climbing 1.5%. On Wednesday, stocks remained flat. It was as if the Monday slip, driven by Delta, had never happened.
What explains the reversal in sentiment?
For one, investors may be wising up to a point that many epidemiologists and virologists have been saying since the pandemic started, well before Delta emerged as the dominant strain: that Covid-19 is likely to become endemic. Governments across the world are preparing for this reality. Many have begun encouraging their citizens to revert to pre-pandemic behavior as they loosen restrictions on the economy, such as mask mandates and limitations on gatherings. “Increasingly, the mantra is the same,” wrote the New York Times this week. “We have to learn to live with the virus.”
Two, despite feelings of jitteriness and déjà vu after a weekend of headlines concerning rising coronavirus cases, investors may have calmed down and reminded themselves that vaccines are doing their job and protecting against severe disease, even in cases of breakthrough infections and the Delta variant. Over 99% of recent deaths were among the unvaccinated, and more than 97% of hospitalizations are among the unvaccinated, according to recent commentary from Dr. Anthony Fauci and CDC director Dr. Rochelle Walensky. To be sure, hesitancy in the U.S. and the difficulty of worldwide inoculation remain significant hurdles to a post-pandemic economy and full recovery. But with vaccines developed and now being rolled out (albeit at a glacial pace globally), those hurdles aren’t insurmountable forever.
Three, and perhaps most importantly, economic data show the U.S. economy is already emerging beyond pandemic conditions. For example, U.S. jobless data released this week show that in July, the number of Americans receiving jobless payments fell to the lowest amount since the beginning of the pandemic Retail sales have risen the past three months. Even concerns about inflation are, in a way, reassuring, in the sense that supply is recalibrating to meet surging economy-wide demand.
In short, U.S. investors should feel good about where things are standing, even with Delta. Markets are reflecting that.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.