Second wave fears

Last weeks we did see that the markets did go up and up nearly every day. As long as there was not too bad news, the markets did go up. Lots of investors used the dip in March to get extra equity exposure. Economies were slowly reopening and that gave confidence.

Large downtick

As I wrote last week, the market seemed to get too greedy. And when everyone is greedy, you have to be careful. We saw this on Thursday. The stock market made a strong retreat (-6% on a single day!) based on fears for a second wave. It has been clear that a second wave is quite a possibilty. There is quite some uncertainty about how the second wave would look like. Investors might soon start jumping from calling victory over the first wave towards fearing the uncertainty of the second wave.

Signals for second waves

It is good to keep an eye on new outbreaks of the Corona virus to understand how likely large second waves are. Some countries are doing really well at the moment. For example the Netherlands has the virus under control. When the Netherlands loosened on their Corona measures, there was no uptick at all in Corona cases (besides upticks caused by more testing). Shopping centres and the beaches were busy at times, but the virus did not come back yet. In Europe the situation is quite well under control. With that we saw the EuroStoxx move up much more than the S&P in the last weeks.  

Infections in some states in the US went up quite a bit. The following link gives you a good overview of where infections are rising quickly in the US:

You can see that in quite some Southern and Western areas/states, the amount of infections is rising quickly. This came after reopening significant parts of the economy.

Another important thing to watch is if the BLM protests in the US will have a strong effect on the outbreak of the virus. So far it seems not be the case, but the protests are still going on and one needs to wait around two weeks to see the impact.

Meanwhile over the weekend new infections appeared in Beijing, China. Parts of Bejing are being put in lockdown again after 45 new infections appeared on Friday. The origin was a food market. Some imported salmon seems to be the cause of the new outbreak. It is a small outbreak and China understands how to handle it. But it shows that the dangers of travel and import/export are very realistic. 55 days went by without any infections in Beijing. It is going to be interesting to see how well the virus will be contained in the upcoming days.

economic damage has limits

When the Corona outbreak started, each country in the end did what it needed to do to stop the virus from spreading. And each country was able to do that. Most economies were doing fine before the crisis and it could hold its breath for a while. But the economy has its limits. A country cannot be too long in a lockdown without damaging the economy severely. A very damaged economy will bring a lot of deaths too. Lots of unemployment leads to poverty and even much more suicides. Poverty leads to bad hygiene and psychological problems. Politicians will take this into account. Hopefully there will soon be a vaccine, otherwise there have to be made very difficult choices. If the economy cannot take it anymore, do you still lock down the country or do you hope for the best and use quite a loose Corona policy?
The difference with the first wave is that we are now much more experienced with how to deal with the virus and with a lockdown. We know more about the virus and how it spreads.

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