Will Delta Roil the Economy?

08/03/2021: COVID infections are rising again, but this time it’s not just among the unvaccinated. Data from an outbreak around the July 4 holiday in the Cape Cod beach community of Provincetown, MA has revealed 74 per cent of the 469 infections were among the vaccinated. Out of 133 specimens sequenced, 119 of them, or 89 per cent, were the Delta variant. Four of the five people hospitalized were previously vaccinated. No deaths resulted from the outbreak. As a result of these findings, the CDC has updated its mask mandate to require both the unvaccinated and the vaccinated, in regional hotspots, to again don masks indoors. News of the CDC’s enhanced guidelines prompted economists to downgrade their US growth forecasts, worried that wary Americans could again retreat into their homes.

So far, investors have shrugged off the outbreak news. The S&P 500 has moved sideways since the CDC updated its guidelines on July 27. That said, reopening stocks have struggled since mid-March. While the Delta variant is a risk factor, the mask mandate didn’t move the needle. Grocery stores have outpaced airline stocks by nearly 50 percentage points over the last three months.

We agree with the market: we don’t believe the latest revelations concerning “breakthrough” infections will dampen demand. Other statistics compiled by the CDC are compelling. Recent studies of actual cases show the vaccines are 88 per cent effective against symptomatic illness. That’s lower than the 95 per cent laboratory result, but remarkably strong nonetheless. Real-world evidence from hospitals shows both the Pfizer and Moderna vaccines offer 87 per cent protection against hospitalization, according to CDC data. While that’s lower than previously published results, it includes 59 per cent efficacy among immuno-compromised patients and 85 per cent efficacy among nursing home residents.  More than 90 per cent of the Americans checking into hospitals with COVID-19 are unvaccinated.

Notwithstanding the headlines, the most recent COVID spike is all about the unvaccinated. While US vaccination rates got off to a great head start, we now trail many of our developed-market trading partners in the share of vaccinations to population. At the beginning of June, the US enjoyed the highest vaccination rate in the developed world – 42 per cent of the population. More than two months later America’s vaccination rate had only edged up to 50 per cent, ranking it behind the UK, Canada and Germany. On July 19, England celebrated “Freedom Day,” which marked the end of coronavirus lockdowns and restrictions, including social distancing and indoor masking. That day, the UK recorded more than 46,000 COVID-19 infections. Yet, within a week, the country’s infection rate rolled over as their case count plunged to just over 19,000 cases. Thanks to the UK’s vaccination program, 88 per cent of adults have received at least their first jab and more than 71 per cent are fully vaccinated. Herd immunity is not far behind.

Managing COVID is all about reducing the percentage of the unvaccinated population. By requiring that everyone, vaccinated and unvaccinated alike, mask up indoors, we believe the CDC’s latest mandate had less to do with protecting the vaccinated from getting and spreading the infection and more do to with not trusting the unvaccinated to keep their masks on. Meanwhile, raising our nation’s vaccination rate is critical in keeping our recovery on track. America just surpassed President Biden’s goal of getting at least one jab into 70 per cent of adults’ arms. That milestone, however, is about a month behind schedule. In the meantime, we expect vaccinated Americans will continue to go about their business – perhaps annoyed at having to wear masks again, but otherwise unruffled by recent developments.