There’s a lot of conflicting information about COVID-19 circulating right now…

Is there a fourth wave coming, led by the delta variant?

Are we due for more lockdowns and a market crash?

The looming threat of the virus has many investors worried, so today I want to take a look at the current state of the country – and where I believe we’re headed next.

To start off, the CDC says there’s a strong possibility that we’re already in a fourth wave of COVID-19, led by the much-publicized delta variant. 

Fortunately, it’s likely the FDA will approve the Pfizer vaccine for general use within the next two months. That’s a big step for a lot of people who are hesitant about taking an unapproved drug… and it’s essential for a true recovery.

And on Monday, the CDC revealed that 70% of the population has received at least one dose of the vaccine. That comes about a month after the Fourth of July, which was President Biden’s original target date of having 70% of the country vaccinated.

The U.S. is now among a handful of countries that have vaccinated most of the population.

If we dig a little deeper into the COVID-19 statistics, the vast majority of vaccinated individuals are well protected. Even those who do develop breakthrough infections don’t tend to end up in the hospital – yet it’s still reasonable to wonder if more guidelines like social distancing will be reintroduced.

Regardless, the government’s goal is clear – get as many people as possible vaccinated and carry on as normal.

The “new” normal likely doesn’t call for social distancing, but rather booster shots as the virus mutates in the future. Like the common cold and the flu, viruses like COVID-19 naturally mutate all the time.

That means we’re moving into a new phase of the recovery where we’ll just have to live with the virus.

We’ll have to live with the vaccine too, as new data tells us that Pfizer’s vaccine loses its efficacy after about six months. That’s great news for investors. The company will be selling new doses every year… maybe even every six months.

Now, in real estate, the moratorium on evictions expired over the weekend. After all, it makes sense to remove supports if most people are vaccinated.

That also means there’s no excuse for not returning to work now. We need everyone to have an incentive to work and apply for jobs. That’s how we get back to full employment and economic normalcy.

Speaking of economic normalcy, the Congressional Budget Office announced on Monday that they estimate the Federal deficit will shrink from $3 trillion to about $1.2 trillion next year. That’s a massive decline in spending and suggests the government is confident we’re not going back into lockdown.

The big question is how dependent is the wider stock market on that extra government spending? My gut tells me it was a big part of the run up in prices over the last year.

If there are fewer bonds being issued, there’ll be fewer bonds for the Fed to buy. They’re already talking about tapering their level of purchases.

And if the government no longer needs to borrow as much, then the Fed won’t have much choice… they’ll have to reduce their purchases, or they’d end up buying most of the market.

All these recent events bring me to say it’s a good time for bonds. There’s always demand for bonds from pensions, insurance companies, individuals, and other governments. With fewer bonds being issued, that could easily push the price up.

August is generally a good month for bonds. In fact, it’s the month which historically has the strongest returns for bonds.

Less supply and strong demand continue to support the market, and it’s a recipe for a bull market. Summertime also means that people are going on vacation, and many investors choose to park their cash in Treasury bonds.

That’s why the iShares 20+ year Treasury Bond ETF (TLT) continues to trend higher, and I think it will keep doing so for the time being.

Overall, I think we have less to fear from the delta variant than we do from a big reduction in government stimulus.

All the best,

Eoin Treacy,
Co-editor, Market Minute

P.S. Last week in my video series, I went over what’s needed for a big bull market, the Fed’s FOMC meeting, and what liquidity means for the market. If you missed it, you can click right here to watch.

And, tune in on Friday to hear my thoughts about what’s been going on in the markets this week.

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Jeff, as an inexperienced trader, I appreciate your explanations of trade ideas. They help me to learn trading and have confidence in our trades. Keep up the good work you’re doing.

– Chris

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