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3 Things Investors Need to Know About the 4th Pandemic Wave: Part 2

Today's article features the SPY & AMC and reveals "3 Things Investors Need to Know About the 4th Pandemic Wave." Read on for this full Part 2 of 2 series.

In part 1 of this series, we looked at what was causing the global 4th wave of the pandemic, and what the world's scientists were doing to minimize the risk of another catastrophic global lockdown.

Now let's take a look at the potential human and economic toll this 4th wave of the pandemic could cause, including how you can protect your retirement portfolio from potential disaster.

3. The Potential Impact On The Global Economy And Stock Market

(Source: IHME)

IHME estimates that we'll see a very steady number of daily infections about half that of the January peak when US cases hit nearly 300,000.

Fortunately, 80% of the most at risk, those 65+, have been fully vaccinated.

This means the number of expected daily deaths is not likely to approach the shocking 4,000 we saw in January.

(Source: IHME)

US daily deaths are expected to remain stable at about 700 through November 1st.

For context, that's about 5X the daily death rate of seasons flu.

Moderna is working on an annual booster that combines COVID and flu, though it's not likely to be out until next year.

By November 1st, IHME estimates 667,000 total US dead, compared to 613,000 so far.

(Source: IHME)

IHME's most recent model expects about 5.4 million daily infectious through November 1st. Just like in the US this is about half the estimated rate of the worst wave of the pandemic so far.

(Source: IHME)

The worst-case scenario is that daily global deaths rise back to 16,000 by the end of August.

In September and October, the number is expected to stabilize around 6,000, or an annual rate of about 2.2 million.

The total number of confirmed global dead is expected to rise from 4.16 million today to 4.93 million by November 1st.

IHME estimates that the actual number of global dead will hit 10.8 million by November 1st, due to some countries, like India, undercounting their dead by as much as 10X.

For context, the previous worst pandemic death toll was 1957's Hong Kong flu with an estimated 5.5 million dead.

The good news is that by the end of the year, an estimated 11 billion doses of vaccines will have been produced. That's enough to theoretically get the world to herd immunity.

Unfortunately, the logistical challenges of actually distributing 11 billion doses will mean that through the first half of 2022, getting the vaccines to poorer countries will be a great challenge.

In the second half of 2022, likely we'll face vaccine hesitancy which is as high as 75% in some countries.

As long as the virus is circulating somewhere it has the potential to mutate into a more infectious and or deadly and vaccine-resistant variant.

Fortunately, Pfizer and Moderna say that the mRNA technology they are using can have new boosters against new variants ready to go in 6 weeks.

That means that the chances of a new super doomsday strain that restarts this entire global nightmare all over is very small.

Stock Market Volatility Is Still Likely However

The good news is that the best economic growth in nearly four decades is still expected in 2021 and 2022.

Moody's for example, one of the 16 most accurate economist teams in the world according to MarketWatch, just updated its forecasts to the following.

  • 6.7% US growth in 2021
  • 5.4% growth in 2022
  • if the infrastructure bills pass then 2.8% annual growth for the following 10 years

2.8% growth might now sound all that impressive. However, its 1% higher than the baseline growth rate of the US given our slowing population growth rate.

Moody's estimates that we'll create about 19 million new jobs over the next 10 years, 13 million more than existed before the pandemic.

The unemployment rate is expected to fall back to 3.5%, where it was in  February 2020, by the end of 2023.

Meanwhile, FactSet Research is reporting that analysts now expect a blockbuster 41% earnings growth in 2021, followed by above-average 10% growth in 2022 and 9% more in 2023.

In other words, thus far the global pandemic's 4th wave hasn't significantly changed the exceptional outlook for the US economy and corporate earnings.

But that doesn't mean that Dave Portnoy is right.

"Say it with me... Stocks only go up. Only losers take profits." - Dave Portnoy

The market recently dipped 3% on fears over the surging delta cases in the US, but some re-opening stocks, such as Carnival (CCL), fell 35% in a matter of days.

AMC (AMC), fell, even more, almost 45% during the recent delta-freakout.

Now it should be pointed out that CCL and AMC are highly speculative companies.

  • CCL has a "B" negative outlook credit rating indicating a 37% probability it will go bankrupt and its stock to zero
  • AMC has a CCC+ credit rating with a positive outlook, indicating a 52% probability of bankruptcy and the stock going to zero

If you are heavily invested in low-quality re-opening names like CCL or AMC, then you most definitely should be concerned about a potential 4th wave of the pandemic slowing the economic recovery.

However, if you're focused on blue-chip companies, such as I only recommend and buy myself, then you have nothing to fear from a 4th wave of the virus.

The Dividend King's overall quality scores factor in 203 fundamental metrics covering.

  • dividend safety
  • balance sheet strength
  • short and long-term bankruptcy risk
  • accounting and corporate fraud risk
  • profitability and business model
  • growth consensus estimates
  • cost of capital
  • long-term risk-management (ESG scores and trends from MSCI, Morningstar, S&P, FactSet, and Reuters'/Refinitiv)
  • management quality
  • dividend friendly corporate culture/income dependability
  • long-term total returns (a Ben Graham sign of quality)
  • analyst consensus long-term return potential

It actually includes over 1,000 metrics if you count everything factored in by 11 rating agencies we use to assess fundamental risk.

How do we know that our safety and quality model works well?

During the two worst recessions in 75 years, our safety model predicted 6 blue-chip dividend cuts on the Phoenix list.

There were five, meaning we predicted 87% of blue-chip dividend cuts during the ultimate baptism by fire for any dividend safety model.

And then there's the confirmation that our quality ratings are very accurate.

DK Phoenix: Blue-Chip Stock Picking Made Easy
MetricUS Stocks144 Real Money Phoenix Recommendations
Great Recession Dividend Growth-25%0%
Pandemic Dividend Growth-1%6%
Positive Total Returns Over The Last 10 Years42%98% (Greatest Investors In History 60% to 80% Over Time)
Lost Money/Went Bankrupt Over The Last 10 Years47%2%
Outperformed Market36%49%
Bankruptcies Over The Last 10 Years11%0%
Permanent 70+% Catastrophic Decline Since 198040%0%
100+% Total Return Over The Past 10 YearsNA83%

(Sources: Morningstar, JPMorgan Asset Management, FactSet, Seeking Alpha)

Basically, historical market data confirms that the DK safety and quality model is one of the most comprehensive and accurate in the world.

This is why I entrust 100% of my life savings to this model and the DK Phoenix strategy.

For example, consider high-yield Ultra SWANs such as Enterprise Products Partners (EPD) or Enbridge (ENB).

ENB 2026 Consensus Total Return Potential

(Source: FAST Graphs, FactSet Research)

EPD 2026 Consensus Total Return Potential

(Source: FAST Graphs, FactSet Research)

S&P 500 2026 Consensus Total Return Potential

(Source: FAST Graphs, FactSet Research)

Not only are both of these high-yield Ultra SWANs expected to double over the next five years, tripling the returns of the S&P 500, but their fortress balance sheets (BBB+ stable = 5% bankruptcy risk) and long-term contracted cash flows mean their 7% to 7.7% yields are very safe.

In a yield-starved world where Vanguard's "high-yield" ETF generates 2.7% income, these are the kind of high-yield opportunities retirees can trust.

Both of these stocks fell hard during the recent delta freakout. Yet their fundamentals were never significantly at risk, and certainly not anywhere close to April 2020 levels.

That's when oil fell to -$38 per barrel, during the worst oil crash in all of human history.

Rest assured that ENB and EPD's mouth-watering yields will not be at significant risk, even in a realistic worst-case 4th pandemic wave scenario.

And that's the key to protecting your retirement nest egg from crazy short-term volatility.

I'm currently buying Chinese tech by the boatload, because names like BABA and TIGR are crashing like March 2020, with their thesis firmly intact.

But those are speculative blue-chips whose risk profiles aren't right for everyone.

If you know yourself, your goals, and build a diversified and prudently risk-managed portfolio, you need never fear any market downturn, for whatever reason.

"If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”

― Sun Tzu, The Art of War

SPY shares were trading at $438.36 per share on Friday afternoon, down $2.29 (-0.52%). Year-to-date, SPY has gained 18.02%, versus a % rise in the benchmark S&P 500 index during the same period.

About the Author: Adam Galas

Adam has spent years as a writer for The Motley Fool, Simply Safe Dividends, Seeking Alpha, and Dividend Sensei. His goal is to help people learn how to harness the power of dividend growth investing. Learn more about Adam’s background, along with links to his most recent articles.


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