The Institute for Health Metrics and Evaluation (the IHME) has publicized their expectations for a second wave of coronavirus in the Fall displayed on their webpage for months. There have been some slight adjustments to the model over time, but it’s been relatively steady; you can see it here. We know what scientists and health professionals think (there are competing models – but generally there is solid consensus), but what do investors think?
Only in the past few weeks did investors start to believe that a second outbreak was possible. The markets have pulled back slightly over the past couple of weeks in response to the potential for a second wave of COVID expansion in the fall and winter of 2020 only after certain states in the Midwest started to demonstrate rising case numbers. However, the change in the overall market’s direction is not well correlated to our expectations of another coronavirus outbreak. First, we’ve known certain types of businesses which offer distanced services and virtual entertainments can survive and overtly benefit from a change in behavior. Second, the broad stock market is subject to many undue influences outside of intrinsic value measures of a company’s worth. The countries tax, fiscal, and monetary policies have all measurably influenced the stock market direction recently.
If we can’t use the broad stock market’s direction as a proxy for investor sentiment regarding COVID, is there a better alternative? We suggest that a purer proxy – subject to less chicanery – might be the price of oil. The energy market was decimated in March – with certain futures contracts slashed to zero – due to the limited mobility of Americans in the spring quarantine and lockdown.
Do note that the future of oil prices probably won’t be as drastic as they were in spring for two reasons. First, while another outbreak of COVID might invite another lockdown, it is likely to be on a regional or statewide level, not on a national level. Second, the corresponding oil supply and pricing war between Saudi Arabia and Russia is unlikely to reoccur so soon. With these caveats in mind, market watchers with an eye for prediction might want to cast a glance on the price of oil, which has thus far moved along with investors’ expectations.