Rethinking the Reopening

By Matthew Klein |  Friday, June 19

Re-closing. The fears of a second coronavirus wave may have been preamature. The first wave, unfortunately, is still here. The national rate of new infections has steadily increased over the past week even as the rate of new infections in early hotspots such as New York City continues to fall.

The reason is that new hotspots are emerging elsewhere, most notably in Arizona, Florida, Texas, the Carolinas, and southern California. (The number of hospitalized coronavirus patients in Arizona, for example, has doubled since late May.)

Apple, which was quick to close stores when the virus first emerged and was also one of the first major companies to reopen its retail outlets in China after the virus had been contained, is now shutting 11 stores in Arizona, Florida, and North and South Carolina.

After a jump up at the open, the S&P 500 dropped almost 2% intraday before rebounding slightly into the close. The net decline was small but it was widespread, with 350 components and 10 out of 11 sectors in the red. Only health care was up, led by pharma companies including Incyte, Regneron Pharmaceuticals, and Vertex Pharmaceuticals. The biggest losers included major REITs, cruise lines, airlines, and clothing retailers.

Investors’ concern is that there may be an inescapable relationship between “reopening” the economy, which temporarily boosts spending, jobs, and incomes, and spreading the virus, which eventually causes consumers and businesses to pull back, undoing most of the initial gains. If that’s right, the economic improvement since the bottom in late April may have already run its course. Meanwhile, most of the income support provided by the federal government is set to expire or be exhausted in the next couple of months.

Experiences elsewhere aren’t particularly encouraging. After a new outbreak emerged in Beijing, consumption plunged, schools were shut, and flights out of the capital were grounded. Preliminary research suggests the strain isn’t the original coronavirus from Wuhan but could have been an imported mutation from Europe. Until the threat of the virus is eliminated everywhere, it will pose a recurring danger.

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