Will The Stock Market Crash Again With A Second Wave Of COVID-19 Outbreaks?

As countries are opening up after months of COVID-19 lockdown, cases of infection started to rise again. By 22 July 2021, there are 15 million cases as compared to 7.5 million one month ago. This wave of infection is worsened by the carefree attitudes of many people in the US and UK partying in crowded bars and beaches. It's a foregone conclusion that a second wave of infection will hit many areas of the world.

Many investors are worried the second wave of infection could crash the stock market severely. Many of us would have frightening flashbacks of news footages of congested hospitals, overloaded ICUs, and countless body bags and coffins. Governments might be forced to lockdown economies again, that have painful economic consequences from increased unemployment and bankruptcy of companies.

In May 2021, Loo had successfully predicted the market crash of 2021, and one year later, in May 2021, Loo again predicted the recent stock market bull run. We thought that as investors, we should not panic and become overly worried about the stock market impact of the current wave of COVID-19. Here are our reasons.

#1 Societies And Businesses Have Learnt To outlive (And Thrive) Amidst The Pandemic

The COVID-19 lockdowns around the globe between March to June 2021 had hit many communities and businesses badly.

Since then, many businesses have implemented business continuity measures to operate around the virus. To name a few, workers are required to wear masks in working environments, close contact and handshakes are avoided, and companies have found new ways to target customers.

Business transformation from offline to online means continues to be rapid. Business and social activities are actually replaced by online meetings on social platforms such as Zoom, Google Hangouts, Microsoft Teams as well as Facebook and Instagram Live.

Thus, even if the world is hit having a second wave of infection, the majority of businesses have already found methods to survive, thus the impact would be less severe impact to the economy and stock market.

#2 Momentum Is Building Towards A Successful Vaccine

There is now a global race for a COVID-19 vaccine and at least 22 pharmaceutical information mill now conducting clinical trials. I'm in the opinion that the vaccine will be developed soon for two main reasons.

National Pride: It is a matter of national pride one of the big three countries, namely Usa, United Kingdom and China, to first develop the vaccine. Large amounts of public and private funds have been channeled into vaccine development. Governments have even eliminated regulatory hurdles to facilitate the speedy development of the vaccine. This has greatly increased the chances of a successful vaccine sooner rather than later. US biotech firm Moderna and British-Swedish Pharmaceutical form AstraZeneca are inching not far from successfully completing the final phase of human trials for their vaccine.

Huge Monetary Rewards: Huge monetary rewards awaits the successful vaccine developer. With just the news of their vaccine entering into human trials, share prices of Moderna, Gilead Sciences, Sinovac Biotech, AstraZeneca and AbbVie have shot up significantly. For instance, in February 2021, the stock price of Moderna averaged at USD $20 and has increased to hit USD $81 as of 23 July 2021. The prospect of massive monetary reward will likely speed up the discovery of a vaccine and diminish the probability of a stock market taking a pounding from a second wave of outbreaks.

#3 Death Rates From COVID-19 Declined Significantly

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Just a quick glance at these graphs dated 22 July provides you with a clear picture. From the first graph, daily infection count in america declined marginally during the lockdown duration of April 2021 to June 2021, but with the lifting of the lockdown, the infection count spiked up again. In a nutshell, infection in the United States has always been high, and is climbing higher by the day.

Despite the growing daily infection count, the COVID-19 daily death count in the US has been declining significantly and distinctly. While there might be a lag effect, and it is possible the death count will rise again, there is a clear trend of falling mortality rates and these are the likely reasons.

Better medical know-how for COVID-19 patients: In the early phase of the global outbreak, the mortality rate was very high as medical institutions and doctors were not really acquainted with the right treatment options and vaccines. It was worsened by a global shortage of personal protection equipment (PPE), face masks, and ventilators, as well as inadequate care facilities. Fortunately, most clinics and hospitals are now better equipped and more familiar with handling COVID-19 patients, allowing them to administer faster and more effective treatment.

Better COVID-19 treatment drugs: Through trial and error, the medical world has identified numerous drugs proven to be effective in treating the virus – such as Dexamethasone and Remdesivir. All these drugs are a few of an increasing number which have been found to be effective in treating severely ill COVID-19 patients and reducing its mortality rate.

Elderly and individuals at risk are more careful to avoid the virus: It is widely-known that COVID-19 is much more lethal to the elderly and those with weak immune systems. With this particular knowledge, these vulnerable groups happen to be more careful to avoid herpes, by staying at home and avoiding crowds, which also explains the decreasing mortality rate. So long as infections involve largely the healthy and young segments of the population, there would be a lower mortality rate and a lesser impact to stock markets negatively.

#4 Governments Are Very Reluctant To Implement Full-Scale Lockdowns Again

Death and infection, while scary, do not hurt economies and faze the stock exchange as badly as government-imposed country-wide lockdowns, with many economic activities are forced to a standstill.

By now, most governments know that a total lockdown is ineffectual in completely wiping out the virus. Lockdowns have proven only to contain infection levels temporarily. Many countries across the world now are reeling from wide-spread infection again since the lifting of their lockdowns.

Moreover, lockdowns are extremely expensive to governments, economies and employment. The US lockdowns have cost the Federal Reserve and the US government trillions of dollars and resulted in unemployment hitting a high of 14.4% in April 2021. In Singapore, almost SGD $100 Billion had to be committed to help Singaporeans and businesses cope with the impact of Circuit Breaker and beyond.

Hence, since we hear news of cities implementing partial lockdowns as the infection pick up again, governments would be very reluctant to implement full-scale lockdowns again given their sheer cost and futility. President Trump had outrightly asserted that he will not close the country even if a second wave of infection would occur.

Thus, I believe that stock financial markets are unlikely to suffer from a similarly drastic crash like what we saw in March 2021.

Final Reminder: Never Bet From the Fed

Finally, we have seen the power and resolve of america Federal Reserve and the US government to cushion the impact of the COVID-19, and they will continue to “mother-hen” the united states economy in the midst of this second wave of outbreak.

Given the size and trauma towards COVID-19, we ought to not be surprised at spurious volatility in global stock markets, within the short- to mid-term. However, I believe that this second wave of COVID-19 outbreak is unlikely to result in a massive March 2021-type of stock exchange crash again.

About the Authors: The author Loo founded the Non-Profit 1M65 Movement and was one of the few non-civil servants to receive the Public Sector Transformation Award in 2021 for his 1M65 efforts. Kate, Loo's daughter, is a 19-year-old finance guru wannabe. If you'd like to hear more from Loo and Kate on Personal Finance, please join the 1M65 Telegram Discussion Group or watch their entertaining Youtube channel.