Overview: Increased cases of the COVID-19 Delta variant rattled global markets last week, as the highly contagious strain is now making up the majority of new cases around the world. Despite these virus worries, stocks in the U.S. rallied on the back of strong second-quarter earnings, with the S&P 500 index up 2.0% for the week. To date, approximately one-third of S&P 500 companies have reported second-quarter earnings, with 76% of them beating expectations by more than one standard deviation. Given global growth concerns and renewed virus worries, central banks around the world will be in focus. In Europe, the European Central Bank (ECB) has pledged to keep rates low, citing the Delta variant as a risk to the recovery. Here in the U.S., the Federal Reserve meets this week, as investors wait to hear the Fed’s next steps. Interest rates remain low across the curve, with the 2-year and 10-year Treasury yields ending the week at 0.20% and 1.29% respectively.
COVID-19 update: (From JP Morgan) Global concern has risen around the Delta variant as rising cases have led some economies to reimpose tighter mobility restrictions. The highly contagious coronavirus strain is now estimated to make up 83% of new cases in the U.S. as new daily cases have risen to 55,000 from a depressed 14,000 at the start of the month. While cases are on the rise, fatalities have remained low and are unlikely to reach anywhere near levels seen last winter. Although the pace of inoculations has slowed, with less than half of the U.S. population fully vaccinated, the most vulnerable to the virus is now the most protected. Those aged 65 and above represented the vast majority of COVID-19 fatalities, and 80% of this age group is now fully vaccinated. Importantly, vaccines do appear to be largely effective at preventing severe illness from variants of the coronavirus. A new study from England shows that the two-dose Pfizer vaccine is 88% effective at preventing symptomatic infections from the Delta variant. This should allow hospitalization rates and fatalities to remain far lower than their pandemic heights even as cases are likely to get worse before they get better. While the Delta variant will likely continue to be a concern for public health officials and investors, we do not believe it will reverse the economic reopening in developed economies where vaccination rates are high.
Sources: JP Morgan Asset Management, Goldman Sachs Asset Management, Barron’s
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