Throughout the coronavirus pandemic, investors from all over have turned to Northern Trust for fact-based insights on the financial markets. On Tuesday, I joined Katie Nixon, the organization’s Chief Investment Officer for Wealth Management, during her weekly presentation to investors.
With 3,000 investors invited to participate, I had the opportunity to address the current state of the pandemic and how the fallout is affecting all aspects of the economy: from small businesses to the broader capital markets.
I began by pointing out that whether you work on Wall Street or Main Street, there are three things everyone should know about this pathogen:
- The coronavirus is highly predictable. Unlike the Spanish Flu or seasonal flu, the current virus has undergone no major mutations. Since reaching U.S. shores in late January, there have been no changes in its genetic structure, lethality or transmissibility.
- Most Americans still don’t grasp the inevitable sequence of events that occur once a person becomes infected: Illness manifests in five to seven days, hospitalization follows for some in two weeks and, for very small percentage, death comes two to three weeks later. Why is this important to understand? The news media report on all three events, but all three happen on different timelines (not one).
- Though the virus acts predictably, people do not. When humans participate in masking, distancing and handwashing, infection rates flatten or go down. When people let their guard down and gather in large crowds, infections spread exponentially. And when this happens, we fail to correct our actions until it’s too late.
Question & Answer Session
Following a brief presentation, it was time for Q&A. Listeners submitted hundreds of questions of which I was able to address about a dozen. Here are three that speak to the ongoing economic and health concerns on the minds of America’s investors.
1. When will a vaccine arrive?
Doctors dislike being the bearers of bad news, but the optimism some have expressed for an effective vaccine by year’s end is highly unlikely. I recently addressed this dilemma in my Forbes column, noting that the process for developing an effective vaccine—be it against measles or polio or smallpox—takes a lot of time. In fact, the fastest a vaccine has been developed this way is four years (mumps). Nearly all take five years or much longer.”
By contrast, major drug companies like J&J, Pfizer and Moderna are relying a method that targets the RNA of the coronavirus. The advantages include ease and speed of vaccine development. The problem: In more than two decades of research, no one has produced a safe, effective RNA vaccine against any viral infection. We have a long way to go and there is no guarantee that we’ll get there in the well-publicized timeline of “12 to 18 months.”
2. What will happen to the U.S. economy?
As a former healthcare CEO and current professor at the Stanford University Graduate School of Business, I am equally interested in the financial consequences and the health consequences of Covid-19. I believe we are at a strategic inflection point that will fundamentally change American life going forward. Even if a vaccine proves effective against the virus, Americans will need to get accustomed to living in a “new normal,” not the old one.
The nation’s coronavirus recession and stimulus efforts are projected to tack an added $8 trillion on to the national debt over the next decade, pushing the total owed by the federal government to over $41 trillion (or 128 percent of the national economy). Small businesses will give way to larger ones, faster than ever. Currently, 80% of CFOs plan to implement aggressive cost containment measures in the years ahead. These will include further layoffs, scaled-back benefits, and accelerated automation. Millions more American workers will find themselves either unemployed, underpaid or uninsured.
We are already seeing the economic shifts unfolding. We see it in the soaring, tech-heavy Nasdaq and in the wobbling DJI. We see it in market capitalization of fintech stocks like Square and PayPal. We see it some of the “surprise” category upsets: Netflix overtaking Disney, Nvidia surpassing Intel, and Tesla attaining higher value than Toyota. We see it in the rise of telecommuting and telecommunications, and we will see it the fall of big-city real estate and the decline of leisure superpowers (from airlines to hotels to car rental agencies).
3. What changes are coming to healthcare?
For decades, healthcare experts and politicians have waxed on about the need to transform a tired industry. And, seemingly every year, a strong economy moved these priorities to the back-burner and allowed the system to remain relatively unchanged. Our nation no longer has the luxury of waiting. Change is coming.
Medical costs must come down. How that will happen is the biggest question facing American healthcare. Either the government and businesses will make a series of coverage and spending cuts that will leave the United States with a two-tier system of healthcare (one for those who can afford access and one for everyone else) or this will be year healthcare’s long-awaited transformation begins.
It will involve moving our nation from its traditional reimbursement model (fee-for-service) to the future-forward method of prepayment, from a fragmented system of care to one driven by multispecialty medical groups that deliver integrated healthcare more efficiently and effectively, and from a system powered by outdated machinery to one bursting with information technologies that keep doctors connected, informed and better-equipped to treat patients.
The statements contained in this article reflect my views and opinions. Northern Trust has neither approved nor disapproved any statements contained herein. Northern Trust is a financial services company headquartered in Chicago. Founded in 1889, it is one of the oldest and largest and banks in the United States. Each year, the organization donates 1.5% of its profits to charities.
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This article was written and published by Dr. Robert Pearl, the former CEO of The Permanente Medical Group, the nation’s largest physician group. He’s the bestselling author of “Mistreated: Why We Think We’re Getting Good Health Care–And Why We’re Usually Wrong” and a Stanford University professor. Follow him on Twitter @RobertPearlMD.
