Investment Strategy Brief: Delta Damage?
We expect U.S. COVID-19 cases will noticeably climb in upcoming months as the Delta variant and other strains spread. New variants could circulate beyond this year, if not permanently, but effective vaccines and a more economic-friendly public health policy approach should limit their impact on the global growth outlook.
Tracking vaccinations. Vaccination rates across early leaders in the global rollout — the U.S., U.K. and Israel — have slowed as “easy uptake” has diminished and those left to vaccinate are mostly people more hesitant to do so. Currently, 55% of the U.S. population is at least partially vaccinated, compared to 68% of the U.K. and 66% of Israel. Despite the slowdowns, we project a combination of gradual inoculation and natural infections will lead to 70-75% of the U.S. population with some form of immunity in the third quarter of 2021. We expect Europe will not be too far behind, if at all.
Tracking cases. Despite high vaccination rates, the U.K. and Israel have seen a significant rebound in new cases. We attribute the rise to a blend of the dominance of the more transmissible Delta variant and the vulnerability of unvaccinated people. Per Axios, the Delta variant is now about 65% of U.S. sequenced cases. U.S. new infections have started to tick up — and over the coming months we expect the increase to continue at a proportional or potentially higher pace than that seen in the U.K. and Israel. However, rises in cases do not mean vaccines are ineffective.
Tracking vaccine efficacy. Rises in U.K. and Israel cases, and the initial uptick in U.S. cases, have not led to material upswings in hospitalizations (see Exhibit 1). Anecdotally, new hospitalizations have been concentrated in unvaccinated individuals. In the U.S.,
there is a clear correlation between rising cases and lower vaccination rates. Of the 10 states with the highest case rates, nine are in the group of the 20 least vaccinated states. Also, early studies on vaccine efficacy against mutant strains have been encouraging.
Among all strains measured (including Delta), data indicates that the Pfizer vaccine maintains high efficacy against severe infection for a minimum of 4-6 months after inoculation. Booster shots may be needed as efficacy wanes against mild infections; also, pharmaceutical companies continue to develop variant-specific vaccines.
Tracking the economic impact. Our Pandemic Adaptation view — that the public health policy approach will shift from preventing all infections to limiting only severe cases (e.g. hospitalizations) — has held up well. After a temporary delay, the U.K. is on track to lift all virus-related restrictions on July 19. Israel appears to be leaning towards living with the virus as long as the rate of severe infections is low. In the U.S., vaccinated states are unlikely to need stringent restrictions and low-vaccinated states are generally run by governments resistant to lockdowns. Mobility data — a good real-time proxy for economic activity — has shown no slowdown in the U.K. or U.S. and corroborates that governments are striking a balance between managing the pandemic’s health burden and allowing for economic growth. Barring a significant setback to vaccine efficacy, we believe mutant strains will likely have a limited impact on global economic growth. While it is possible economic activity in low-vaccinated areas may suffer from virus setbacks, those areas make up a small proportion of global economic growth. For key growth regions, growing immunity and a high bar for governments to reenact lockdowns leave the path to some form of economic normalcy intact for now.
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