To say that investors are scared of the coronavirus pandemic is an understatement. In March, surging cases around the world and in the US resulted in lockdowns that crushed the global economy, and the stock market.

The S&P 500 plunged a remarkable 34% in just four weeks, the fastest bear market in US history. Of course, we all know what happened next. The most extreme bear market in history was followed by the most incredible post-bear market rally in history. The broader market managed to hit new record highs just five months after bottoming in March when the world economy was shut down and fears of another Great Depression were on the minds of every investor. But, now the virus is back with a vengeance, with cases surging out of control in most of Europe and in 37 US states.

(Source: covidexitstrategy.org)

Last week the S&P 500 plunged 5.6%, the worst week since March. The Dow Jones Industrial Average did even worse, falling almost 6.5%. If you are one of the millions of investors who are having flashbacks to those dark days in March, here’s what you need to know about how bad this pandemic is likely to get in the coming months. More importantly, I’ll tell you the most effective way to protect your hard-earned savings from the potential retirement dream killing carnage that might be coming to Wall Street in the coming weeks.

Things Are Likely To Get A Lot Worse

Globally the pandemic is going horribly, with the seven-day rolling average now approaching 500,000 confirmed cases per day. MIT estimates that for every case we find there are 12 we don’t.

In the US things are even worse, with daily cases up 45% in the past two weeks. The seven-day rolling average is up to almost 83,000. That’s nearly three times the April record. Back then we thought “it can’t possibly get worse.” Well, it can, and is. Health experts like Dr. Anthony Fauchi and Dr. Michael Osterholm, who are among the most experienced epidemiologists on earth (and have over 80 years of experience between them), have warned us all year this was coming. Dr. Fauchi back in July warned that without appropriate social distancing measures we could see rolling seven-day averages hit or even surpass 100,000 per day. Dr. Osterholm, direct of the Center for Infectious Disease Research & Policy, or CIDRAP at the University of Minnesota, said months ago on his podcast that he expected that over 100,000 cases per day were likely after Labor day. Colder temperatures forcing people indoors where the virus spreads easier, combined with pandemic fatigue and lower air humidity, would combine into a perfect storm of viral spread. Harvard estimated back in April that in a worst-case scenario, a second wave (now the third wave in the US) could reach up to 200,000 new daily cases. That’s based on the 1918 flu pandemic in which the largest wave was 6X more severe than the first. Just how bad could things get?

Prepare For A Horror Show Of A Winter

(Source: IHME)

There’s good news, bad news, and terrible news from the Institute for Health Metrics & Evaluation’s most recent four-month forecast. The good news is that infections are only expected to peak about 20,000 per day more than April. The bad news is that this is almost double the estimated infection peak in mid-July (when we peaked at 76,000 daily cases). But the terrible news is that these estimates might prove incredibly conservative and here’s why.

(Source: IHME)

IHME’s model assumes that either through lockdowns or merely people staying home on their own, social mobility will fall significantly in the coming months. Even in their “mandates easing” scenario, in which states blindly keep lifting restrictions, social mobility is assumed to fall 21%. And under the base case forecast, social mobility, as tracked by cell phones, falls 47% by February 1st. For context, at the height of the lockdowns in late April, we hit -52% on social mobility. Now here’s some more good and bad news for you to ponder.

Google Mobility Summary

(Source: Google Mobility) data as of the week ending October 27th

Google’s randomized cellphone data shows that retail mobility hasn’t changed in the last two months, even as cases were surging and states were warning that ICUs were filling up fast. In fact, the overall social mobility of Americans hasn’t changed much despite the worsening pandemic. Why is this both good and bad news? If you believe that we should just grin and bear this pandemic, and keep the economy open and go about our lives as if the virus were no big deal, then it’s wonderful news that Americans have, thus far, mostly ignored the surging cases. But IHME’s model assumes that we’ll lock down most states almost as tightly as we did back in April.

Why Lockdowns Are NOT Likely To Happen Again

There does not seem to be any appetite from governors, the administration, or Congress to encourage a second wave of stay-at-home orders if we can continue to take alternate measures to curb the spread, such as encouraging mask-wearing, social distancing, and other public health actions.” –  Heather Meade, healthcare policy advisor and principal Washington Council for Ernst and Young.

“I don’t believe there will be a second lockdown…America does not have the willpower or the leadership to withstand another shutdown or more economic devastation.” – Dr. Daniel B. Fagbuyi, an emergency physician in Washington, D.C., and Obama administration biodefense and public health advisor.

“The appetite for shutting down the entire country is simply not there, and a lack of real borders between states and regions means a hodgepodge of regulations governing travel between states and requirements for infection control.” –  Dr. Farley Cleghorn, leader of Health Practice at Palladium and a global health expert with more than 30 years experience as an epidemiologist.” –Healthline 

America is a country in which it took months for a majority of people to even agree on wearing masks, something which a small but passionate minority still refuses to do. The first lockdown avoided a depression due to $2.3 trillion in stimulus passed in record time. This time we can’t even pass $500 billion in targeted stimulus due to partisan gridlock. Each state’s governor has the authority to decide whether or not a state lockdown, not the President, not Congress.But, isn’t avoiding more lockdowns good news for the stock market and economy?

As Goes The Virus, So Goes The Economy

We find no evidence that cities that acted more aggressively in public health terms performed worse in economic terms,” says Emil Verner, an assistant professor in the MIT Sloan School of Management and co-author of a new paper detailing the findings. “If anything, the cities that acted more aggressively performed better.” – MIT 

An MIT study found that the faster you get control of an epidemic the faster and better your economy will recover in the long-term. As things stand now the US has no national policy, no plans for such a policy, and a very real chance of our epidemic being worse than the IHME’s base case forecast. What could that actually mean in the coming months?

(Source: IHME)

IHME estimates in its base-case forecast, which this Friday will be updated through March 1st, that by mid-January we’ll peak at 2,300 daily deaths in the US. Remember that’s the scenario in which the US locks down almost as tightly as April. What if we don’t lock down again, which numerous health policy experts say is the actual most likely outcome?

• base-case becomes 6,100 daily dead by February 1st
• worst-case almost 8,400 daily dead by February 1st

IHME’s forecast predicts a base-case, under lockdowns that are currently not likely, of 399K dead by March 1st.

(Source: IHME)

IHME estimates that if we just ignore the virus, as we’ve been doing so far for the last month, we could see as many as 623K dead in the US by February 1st. But doesn’t that mean that the economy might still be OK? After all, it may be a Faustian bargain but can’t Americans just “throw grandma under the bus” and go about our business and thus prevent catastrophic economic damage. In theory, we could, if we ignored the ethical and emotional toil such an approach would take, which MIT estimates would involve up to 3.3 million dead Americans, 1% of our population. But let’s remember how America responded to the coronavirus so far.

• through early March we mostly ignored the epidemic in the US, ignoring health expert recommendations
• when deaths rose to levels that we couldn’t ignore we reacted with emergency measures that shattered the economy
• we then ignored health expert recommendations again, reopening too soon, and allowing for a second, and now the third wave of the virus
• most likely, if we let the epidemic get out of control again, we could EVENTUALLY once more react with a knee-jerk emergency reaction, and lockdown once more, shattering the economy again
• except that by then over 500,000 Americans could be dead

When you don’t have a logical or disciplined strategy, you can end up with the worst of both worlds, a mountain of death AND a shattered economy with unemployment hitting or even surpassing Great Depression levels. The stock market has thus far mostly ignored the surge in cases, reacting with a historically normal and healthy correction. But in the coming weeks, if things spin out of control as they did in March, that is unlikely to remain the case. In part two of this series, I’ll explain the easiest and most effective way to protect your portfolio from the potential coming carnage. This could be the difference between retiring in splendor, retiring in comfort, or never retiring at all.

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SPY shares were trading at $346.81 per share on Wednesday afternoon, up $10.78 (+3.21%). Year-to-date, SPY has gained 9.30%, versus a % rise in the benchmark S&P 500 index during the same period.

About the Author: Adam Galas

Adam has spent years as a writer for The Motley Fool, Simply Safe Dividends, Seeking Alpha, and Dividend Sensei. His goal is to help people learn how to harness the power of dividend growth investing. Learn more about Adam’s background, along with links to his most recent articles. More...

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