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Not out of the bunker yet

I teach finance at The Citadel and the College of Charleston. Typically, that is irrelevant, but it may be a “tell” during Covid-19 because America’s unpredictable return to the classroom may impact the economy and thus financial markets. Two weeks into the fall semester at The Citadel — the College of Charleston is online at least until September 14 — and I have a student who has been quarantined and another who is tending to her father who is infected. Furthermore, the technology that we use (Zoom) to reach those studying remotely has been spotty.

I wonder why. In December 2019, Zoom, which may be academia’s most popular video conferencing app, hosted 10 million participants per day. Now that figure is more than 300 million. Zoom is used by 90,000 schools, including The Citadel and the College of Charleston, in 20 countries. Yes, its systems have been pushed to the brink. So, from this professor’s perspective, I am a bit anxious. In addition to my teaching experience, we all have read about worse troubles that they have had at big schools like the University of North Carolina at Chapel Hill and Notre Dame. What will be more revealing may be what happens when the rest of America tries to open its schools after Labor Day. The battle concerning our students may even figure into this presidential election, which, of course, may feed into everything else, so stay tuned.

I often am asked about the disparity between Wall Street, where stock prices (i.e., the S&P 500) have soared 56 percent since peak Covid-19 pain in March and Main Street, where millions are still jobless after a start-stop economic rebound. Stepping off the roller coaster, which stocks have been on in 2020 given coronavirus’ twists and turns, United States stocks are still up eight percent this year. That ain’t too shabby given that during the last 91 years the S&P has been up an average ten percent per annum.

This rebound in stocks is mostly based on the expectation that a vaccine soon will be approved and that it will be widely distributed across the U.S. and other hot spots, so that we lick coronavirus during 2021. The Trump administration has focused on seven of the most promising vaccines and has spent more than $11 billion to support developing them, to speed them though Federal Drug Administration approval and to secure their manufacturing capacity. Other countries also are hustling for therapies. Worldwide, there are about 200 Covid-19 treatments under development.

Nonetheless, the race to the cure will continue to be tough — typically, vaccines are developed in a decade — and inoculating America’s 2.5 million active cases (and that is just as of today) will be a logistical nightmare. Remember, the U.S. has been disproportionately impacted by the disease. We only have four percent of the world’s population but 25 percent of its total (not active) cases. America’s proportion of the globe’s Covid-19 deaths is less, but it still is a startling 22 percent.

If you believe in the rapid vaccine process, then a V-shaped economic recovery may be realistic. To clarify what the pundits mean when a recovery is V-shaped, the rebound (i.e., the right side of the V) will be as fast and as steep as was the decline (i.e., the left side of the V). If this is in the cards, then stocks could rally even further because between fiscal (taxing and spending, but spending in this case, legislated by Congress) and monetary (our central bank, the Federal Reserve Board, lowering interest rates and buying troubled debt) stimuli, our federal government has supplied trillions of dollars of rocket fuel to propel stocks and other asset prices once we get the Covid-19 “all clear,” which only should occur once the bulk of us feel safe enough to return to our roles as employees and consumers in that order because we need jobs to spend more, which will be necessary to boost the American economy. In your heart of hearts, how do you think that this will play out? Frankly, I am undecided, but an effective, broadly distributed vaccine would go a long way to making me bullish again.

Paul Meeks, CFA, manages the Wireless Fund (WIREX) and is a portfolio manager at Independent Solutions Wealth Management. He also teaches at The Citadel and at the College of Charleston. He is on Daniel Island.

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