The market has been on fire since October 28th, the bottom of this current market pullback.
First, the election results turned out less scary than many had feared. Then news of a 90% effective vaccine (actually 94% to 100%) sent the S&P 500 up over 3% that day, and some stocks, like pandemic ravaged Carnival (CCL), up 30% on November 9th alone.
In fact, since October 28th’s lows, CCL has been a hotter stock than Tesla (TSLA). But of course, the trouble is that such a strong rally, including the best November in 33 years, caused the already overvalued market to fly off into a bubble.
The S&P 500 hit new record highs and became 40% historically overvalued, on optimism about vaccines + stimulus causing the strongest economic growth in 21 years next year.
The market was priced as if nothing would ever go wrong again. And of course, then something went wrong, which sent stocks skidding 2.4% in pre-market trading.
A New Super Strain of Corona Virus Is 70% More Infectious
It’s thought that the new strain could be up to 70% more transmissible than the original strain of the disease, Johnson said on Saturday, adding that it appears to be driving the rapid spread of infections.” – CNBC
On December 10th the first news of a potentially new strain of the virus started to surface. Just like in February, the market ignored the new threat, focusing on other more optimistic news/rumors.
Over the weekend the truth about the new virus became clear, in the starkest of ways.
- English health officials declared that 60% of new cases were a new strain, a mutation that had a transmission rate (R^O) of 1.4.
- the strain was also confirmed in continental Europe, Australia, and South Africa
- over nine countries quickly imposed travel bans on UK travelers
Prime Minister Boris Johnston, who had previously said he would lift restrictions in time for Christmas, instead of imposed an April style lockdown on 16 million people in the South East of England (including London).
The fact that the virus has been found on four continents already indicates that it’s likely in dozens of countries, we just haven’t found it because we haven’t been testing for it specifically.
What exactly does this new super strain, which is 70% more infectious, mean for our pandemic weary world?
The Good News & Bad News About This New Super Strain Of Covid-19
New variants, or strains, of the virus that causes COVID-19 have been seen almost since it was first detected in China nearly a year ago.” – CBS
Mutations are a normal feature of viruses and don’t necessarily result in a worse pandemic.
Health experts in the U.K. and the U.S. said the strain seems to infect more easily than others, but there is no evidence yet it is more deadly.” – CBS
There is no benefit to COVID-19 to become deadlier, just more transmissible. That’s how natural selection works, whatever mutations allow the virus to spread faster, makes it most likely to become the dominant strain.
More of a concern is that mutations can potentially limit the efficacy of vaccines, which the world has spent billions developing in record time.
The strain is also concerning because it has so many mutations — nearly two dozen — and some are on the spiky protein that the virus uses to attach to and infect cells. That spike is what current vaccines target.
“I’m worried about this, for sure,” but it’s too soon to know how important it ultimately will prove to be, said Dr. Ravi Gupta, who studies viruses at the University of Cambridge in England.
He and other researchers posted a report of it on a website scientists use to quickly share developments, but the paper has not been formally reviewed or published in a journal.
“It’s probably not more lethal, but we don’t fully understand its contours,” former U.S. Food and Drug Administration Commissioner Dr. Scott Gottlieb said Sunday on CBS’s “Face the Nation.” He added, though, “It seems like this new strain is more contagious.”
For now, the consensus among most health experts is that the new mutation won’t affect the efficacy of the vaccines, though some scientists are worried it might prolong the pandemic.
That’s the bad news. But the good news is that not all super strains of the corona-virus end up sweeping the globe.
In April, researchers in Sweden found a virus with two genetic changes that seemed to make it roughly two times more infectious, Gupta said. About 6,000 cases worldwide have been reported, mostly in Denmark and England, he said…
Several variations of that strain now have turned up. Some were reported in people who got them from mink farms in Denmark. A new South African strain has the two changes seen before, plus some others. ” – CBS
Until scientists have time to study this new strain, it’s not prudent to assume the worst.
The one in the U.K. has the two changes and more, including eight to the spike protein, Gupta said. It’s called a “variant under investigation” because its significance is not yet known.
“This is not the time to panic,” Dr. Shira Doron, an infectious diseases specialist, told CBS News. “In all likelihood, this is just another mutation that leads to another strain, and this is what we have seen throughout the pandemic.” – CBS
In fact, while the news of this strain broke on December 10th, scientists have actually known about it since discovering it months earlier.
The strain was identified in southeastern England in September and has been circulating in the area ever since, a World Health Organization official told the BBC on Sunday.” – CBS
What do leading healthcare experts say when asked if this will undermine the vaccines?
“Probably not,” said Gottlieb.
“Unlikely,” Gupta agreed.
Surgeon General Dr. Jerome Adams said on “Face the Nation” that officials “have no indications that it is going to hurt our ability to continue vaccinating people or that it is any more dangerous or deadly than the strains that are currently out there and that we know about.”
President-elect Joe Biden’s surgeon general nominee, Vivek Murthy, said Sunday on NBC’s “Meet the Press” that there’s “no reason to believe that the vaccines that have been developed will not be effective against this virus as well.”
The possibility that new strains will be resistant to existing vaccines are low, but not “inexistent,” Dr. Moncef Slaoui, the chief science adviser for the U.S. government’s vaccine distribution effort, said Sunday on CNN’s “State of the Union.”
“Up to now, I don’t think there has been a single variant that would be resistant,” he said. “This particular variant in the U.K., I think, is very unlikely to have escaped the vaccine immunity.”
“I’m not concerned” because a lot of changes in the genetic code would probably be needed to undermine a vaccine, not just one or two mutations, Bedford wrote on Twitter. But vaccines may need fine-tuned over time as changes accumulate, and changes should be more closely monitored, he wrote.” – CBS
While the risk of a new strain of the virus popping up that forces us to go back to square one on the vaccines is never zero, neither is the risk of a nuclear war.
Or even a stock market collapse that breaks records. Consider this.
- on October 19th, 1098 the S&P 500 fell 20% in a single day
- this was the famous “Black Monday” the worst single stock crash in US history
Black Monday was caused by computer algorithms going crazy and we’ve since imposed circuit breakers limiting how much the market can drop before the market closes for the day.
- the stock exchange will now close for the day if it falls 20%
This means that the most the market can decline in a single week is 0.85 = 63% if the S&P were to plunge the maximum circuit breaker limit every day. In a single month, the most the market can decline is 99%, if it were to fall 20% every day, for four weeks.
Those sound like horrific numbers, right? They would put the March pandemic crash of 34% in four weeks to shame. BUT barring an actual nuclear war, in which case the market would likely not even be functioning, the probability of such declines is very remote.
How remote? I can’t give you the exact figures, but it’s so close to zero as not to be worth worrying about or planning for.
- what investing strategies are “nuclear war proof”?
- none, we’d be too dead to care about portfolios if we suffered such a catastrophe
This is actually why US Treasury bonds and other sovereign bonds from developed nations such as Japan, Europe, and the UK, are considered “risk-free” assets.
Since these governments have the power to print their own currency, the only way they would default on their bonds is if their governments ceased to exist. Is the risk of not getting repaid on your US Treasury bonds actually zero? Absolutely not. But if the US government were to default it would likely mean a collapse of the government, in which case we are likely facing a global economic holocaust that will make most currencies (gold as well) worthless.
A fight for survival would be the only thing on our minds, not the asset allocation of portfolios that we probably can’t even see because the electric grid isn’t functioning.
- without power Bitcoin and all cryptocurrencies would be worthless
The bottom line is that while it’s important to pay attention to new threatening viruses (don’t you wish we had back in February?) it’s not prudent to panic and assume a doomsday scenario, either for the economy, the world’s populations, or your portfolio.
In fact, in part two of this series, I’ll show you the smart and easy way to profit from this new super-strain of the Corona-virus, which could potentially make you a fortune in the coming months.
SPY shares were trading at $372.08 per share on Monday afternoon, up $3.08 (+0.83%). Year-to-date, SPY has gained 17.76%, 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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