The prospects for a return to lockdowns appear to be on the rise, pressuring stock prices in September. Nonetheless, strategists at Charles Schwab believe a return to widespread national lockdowns is highly unlikely for three reasons: healthcare systems are not overwhelmed, precision pays off when it comes to the effectiveness of restrictions and national lockdowns are known to have a huge cost.
“A return to widespread national lockdowns is highly unlikely for three reasons: healthcare systems are not overwhelmed, mid-summer second waves of virus cases in the US and China faded when narrow, localized restrictions were put in place, achieving success while limiting overall economic impact and the huge cost of the economic and human toll of national lockdowns is now known to be severe. Examining each of these leads us to believe a return to widespread national lockdowns and a related return to global recession and a bear market is highly unlikely.”
“Avoiding a boom and bust economic environment generated from the rapid removal of economic restrictions followed by a renewed national lockdown should be a priority for politicians. With broad-based vaccinations unlikely this year, measured restrictions may be needed to effectively contain the virus while being efficient in their economic cost. While stocks have been wary of measures taken in September to contain the outbreaks, investors may soon get comfortable with these effective alternatives to widespread shutdowns.”
“The biggest political risk facing investors is the potential for a more dramatic reaction to COVID-19 outbreaks by politicians in the form of national lockdowns that could lead to a new bear market for stocks. In addition, such severe measures could prompt a rotation back into the COVID-winner US tech stocks and away from cyclically-oriented international stocks that have outperformed recently.”
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