Reopening of the Economy

Reopening of the Economy 

The next step as we move through this virus pandemic is the reopening of the economy and a return to normalcy. Although the “reopening” of the economy is talked about as a singular moment where economic activity is resumed, we see it as more of a process that will take place over the next 2-3 quarters. The economy being “open” is one thing, but the return to normalcy is the more difficult time window to predict. It may take years for several aspects of the economy to return to pre-virus conditions. Financial markets, particularly the fixed income market, have likely been changed for a significant period of time on behalf of the unprecedented central bank stimulus taking place across the globe.

 

The virus has not affected all regions equally and this will not change once economies reopen. Those parts of the country that have a much higher infection rate such as New York and New Jersey will find it more difficult to lift restrictions while infections remain high. A high-level overview of significant reopening dates is provided in the table below:

 

It will also be more difficult for certain states to return to work and get their local economies running at close to normal capacity. The St. Louis Fed recently published a study breaking down how high contact occupations (teachers, healthcare workers, foodservice staff, etc.) will affect reopening in some states as compared to others. The graphic below highlights which of those states will most likely see a rise in cases after restrictions are lifted on account of their economy being fundamentally more contact driven. These are the states that we expect to have a longer and more difficult road to fully reopening their economies.

Initial data from parts of Asia where economies have been slowly reopening has been promising from the perspective that a spike in infections has not taken place to the extent that most predicted. Hopefully by using socially conscious distancing measures as well as other behavioral changes such as mask requirements and robust testing, the same results can be translated to the United States. But at the same time, until a vaccine is developed, we need to be prepared for complications as the economy gradually reopens.

We will continue to monitor the situation closely and will keep you informed as new information becomes available.

 

 

Commentary Disclosures: Covington Investment Advisors, Inc. prepared this material for informational purposes only and is not an offer or solicitation to buy or sell. The information provided is for general guidance and is not a personal recommendation for any particular investor or client and does not take into account the financial, investment or other objectives or needs of a particular investor or client. Clients and investors should consider other factors in making their investment decision while taking into account the current market environment.

Covington Investment Advisors, Inc. uses reasonable efforts to obtain information from sources which it believes to be reliable. Any comments and opinions made in this correspondence are subject to change without notice. Past performance is no indication of future results.