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Near-term Risks Still Climbing

January 13, 2021

Graph depicting weekly changes in COVID-19 cases

Source: Bloomberg

Just as the longer-term outlook continues to brighten, the near-term risks are still accumulating. The new COVID infection rate continues to climb and while state and local government restrictions have yet to be aggressively ramped up on balance, the growing lockdowns around the world should serve as a hint of what may be possible in the U.S. in the weeks ahead. England reinstituted a stay-at-home order last week while China this week issued home isolation mandates for three major cities in Hebei province. Several other countries are mulling similar measures and, with many U.S. states having linked re-opening to county-by-county case rates last year, the scope is very much in place for more widespread shutdowns domestically as well. Moreover, this risk could well be compounded as the B.1.1.7 mutation, which has recently spiked the case rate in the U.K. and has already been found in nearly a dozen states, takes further hold in the U.S.

Perhaps the overarching theme of this winter and spring, then, will be the race between vaccine distribution and the spread of new COVID variants just as last year was marked by the race between vaccine development and business failures. That dynamic ended as well as could have been expected at the outset of the pandemic and there continue to be many reasons to believe that this latest stage of the crisis will conclude in a similarly favorable manner (most notably, a recent study suggests that Pfizer’s vaccine is effective against COVID mutations). Moreover, the heavily front-end loaded fiscal stimulus signed into law late last year should limit the near-term economic fallout, even if it can’t come close to completely eliminating it. The ongoing soft patch may well broaden and deepen before it runs its course, but it is still a good bet to give way to a renewed boom by the summer.

 

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