What Does The Delta Variant Really Do To The Market?

(QC Daily) Since the start of the global pandemic, the SARS-CoV-2 virus — which causes COVID-19 — has gone through a number of mutations. Fortunately, most have raised few, if any, alarm bells. But a few mutations have caught the attention of the medical community, the most recent being the Delta variant.

The Delta variant, named B.1.617.2, was first identified in late 2020 with the first reported U.S. case in March 2021. According to the Centers for Disease Control and Prevention (CDC), Delta has since become the dominant strain in the U.S., accounting for more than 83% of all new cases. The Delta variant is highly contagious. Medical experts estimate it spreads 50-60% faster and is far more robust than other dominant strains. On Thursday, CDC Director Dr. Rochelle Walensky called the Delta strain “… one of the most infectious respiratory viruses we know of, and that I have seen in my 20-year career.”

In the U.S., the Delta variant has shown its impact. The number of new daily cases of COVID-19 has shot up from 9,645 on June 28 to 55,132 on July 21. For perspective, this is still far below the 200,000-300,000 daily average back in December and January during the second global wave of infections when vaccinations were still in their infancy.

The ongoing vaccination of America’s population has led to the rapid resurgence of the U.S. economy. Accordingly, Wall Street’s greatest concern is the risk of a more powerful, contagious mutation that could bring the economy to a grinding halt — like the Delta variant.

On Monday, the escalation of the Delta variant triggered a sizable sell-off in the stock market. The Dow Jones Industrial Average (DJIA) fell 725 points (-2.1%), its worst daily decline since October. The S&P 500 and NASDAQ fared slightly better, falling 1.6% and 1.1%, respectively.

But the panic was short-lived. All three stock indexes quickly recovered and by Thursday had all recouped Monday’s loss. As of Thursday, the DJIA closed at 34,823, just 172 points from its all-time high. But why the apparent lack of concern over the Delta variant?

Wall Street is quick to note that 97% of all hospitalizations for COVID-related symptoms are among unvaccinated persons. According to the CDC, the current arsenal of vaccines don’t provide 100% protection against Delta but significantly lessen the effects. Wall Street is assuming that government officials — though threatening a return of mask mandates — will be hesitant to return to more stringent measures of business closures and restrictions that marked the economic devastation of spring 2020.

For now, at least, Wall Street appears more concerned with the ongoing labor shortage and inflation than it does with the rise of the Delta variant. Against the backdrop of a vaccine-fueled economic recovery and strong consumer spending, corporate earnings have surged. In the current second-quarter earnings season, 88% of corporations have reported earnings above expectations.

For right or wrong, Wall Street is assuming Delta is just a small, temporary bump in the road. But this assumption carries sizable risk. According to CDC data, only 49% of the total U.S. population is fully vaccinated. For persons 18 years or older, the number jumps to 60%. Globally, vaccination rates are much lower, not so much by choice but by lack of availability. The global vaccination rate is just 13.3%. The low vaccination rates of India (6.4%), Japan (23%), Mexico (17%), Brazil (17%) and Australia (12%), among others, highlight the logistical challenges of vaccinating a global population.

The ultimate path of the Delta variant is yet to be seen. But its highly contagious nature and low global vaccination rates could bring further disruptions to both the U.S. and global economy


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