5/31/2020: Weekly Wrap-up & What to Expect

State reopening proves successful. Americans are reengaging with society.

As we expected, we heard a string of positive news regarding COVID and society. Reopening has been successful with the help of government relief and additional players joining in the effort to develop COVID vaccines and treatments. Riots around the U.S. have led to volatility, but will not likely have long-term effects on the economy. Here are the details:

  1. Novavax (NVAX) starts P1 COVID vaccine trial and Merck (MRK) announce development of two vaccines and one treatment. At the beginning of the week, two biopharma companies announced progress in the fight against COVID, with NVAX starting a P1 trial and MRK initiating vaccine and drug development. These two companies are only the latest to announced positive development against COVID. Merck, well known for their production of penicillin to help keep soldiers healthy to win WWII, is now taking on another war, the COVID pandemic. 

  2. General consensus seems to say, "the worse is over", as economies have demonstrated successful reopenings to-date. Now that all states but New Jersey have plans of reopening, signs of economic life are re-emerging. Spending on hotels, restaurants, and flights have started picking up. “If this is the only wave [of coronavirus], it looks like we’ve bottomed out and the normalization process has begun,” said Beth Ann Bovino, U.S. chief economist at S&P Global Ratings.

  3. However, COVID relief has been so great that the U.S. government is considering financial incentives for people to go back to work. A new study by the University of Chicago show that two-thirds (68%) of jobless workers may earn more money from their state unemployment insurance plus the $600 weekly supplement from the federal government than they would have on the job. In fact, one in every five eligible workers would receive benefits that were double their lost earnings. Because benefits are so great, the U.S. government is worried that citizens may be disincentivized to go back to work. As a result, the Trump administration is considering a $450 per week bonus to return to work on top of wages. 

  4. Furthermore, riots across the U.S. after the tragic death of George Floyd demonstrate instability across the U.S. and is a wild card for the market. Protests over the tragic death of George Floyd in Minnesota, New York, etc. have resulted in violence, arson, and looting. Political and cultural instability never benefits the economy, especially as it's recovering from the devastating COVID blow. However, instability like this in the U.S. generally ends after a week or two once citizens turn from protest to discussion that hopefully results in a permanent societal change for the better.    

Even with protests across the U.S., economic recovery from COVID continues, fueled by medical advancements and successful reopenings. WX Capital believes the riots will contribute to volatility in the near-term as we saw in the last few days of trading last week. However, over a longer period, we believe that economic recovery will be sure and steady. Our investments in companies hit hardest by COVID is now starting to return well. Furthermore, we've lined up our portfolio with biotech companies with high-likelihood catalysts which will help us maintain our above-market returns. As usual, don't ever hesitate to reach out with questions!