Despite efforts taken to counter COVID-19 the number of diagnosed cases continued to grow, and steps taken to minimize the resulting economic interruption took centre stage.

Public health

The public medical response to the disease’s spread shifted into high gear. After an initially slow response, the US is now testing nearly 70,000 people daily - as many each day as it had tested in total up to March 18. The vastly increased number of tests revealed a much larger number of infected Americans, but the US mortality rate remained very far below that observed in Italy and Spain. The number of Canadians diagnosed also accelerated but at a slower pace than in the US, and the Canadian mortality rate also remained very low.

Public gathering

The social distancing measures meant to slow the virus’s spread didn’t change appreciably from the prior week. The Quebec and Ontario governments took the additional step of ordering closed all non-essential businesses, but many companies had already largely scaled back their operations before these orders came into effect.

Public economics

The initial economic toll of the health restrictions started to come into better focus. In just one week, Employment Insurance applications received by the Canadian federal government increased by about one million, roughly 5% of the employed population. For comparison, the largest ever one-month increase in the Canadian unemployment rate since records first began in 1976 was 1%. A major business slowdown is clearly upon us, albeit one undertaken for the right reasons and one which should only be temporary.

Public spending

North American governments announced extraordinary fiscal measures. The US federal government passed a $2 trillion emergency aid bill and the Canadian federal government also passed the spending and tax deferral measures it first proposed the prior week. The Canadian package’s direct spending component doubled to over $50 billion, as individuals who directly lose income due to COVID-19 or the public health restrictions will be eligible to receive $2,000 per month for up to four months.

Central bank actions

At the start of the week, the US central bank (the Federal Reserve, or “Fed”) announced further measures to counteract the contraction of credit and the money supply. Three new programs were established and three existing programs will be significantly expanded, which will aid the flow of credit to both employers and consumers.

There’s much insight in the preamble to the Fed’s announcement: “It has become clear that our economy will face severe disruptions. Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes…” The Fed recognized that central banks and governments cannot halt the initial economic disruption due to the public health measures, but that coordinated actions can minimize the secondary economic effects, which could otherwise be worse than the initial disruption. An analogy is that they can’t stop the first train car from derailing, but they can keep the other cars on the tracks so that when the pandemic passes, the train can quickly start moving again.

Financial markets

Stock market volatility diminished somewhat over the past several days but are still higher than normal. Corporate bond prices also stopped falling and began to rise, though many companies’ ability to service their debt will be severely tested in the coming months. We are optimistic that the large price swings that characterized the earlier part of this month will continue to recede.

Conclusion

Although these are still very early days for both the public health restrictions and their resulting economic impact, improved prevention practices are already afoot. For example, the US Food and Drug Administration (FDA) approved last week a rapid COVID-19 test whose results take only 45 minutes. If widely implemented, this type of test can drastically reduce the spread of infection.

While such thinking might be considered prematurely optimistic, what is not optimistic but merely realistic is that history teaches us that society will move past this challenge, and that the pandemic will at some point recede and then pass. Our advice to investors therefore hasn’t changed: stay the course, and keep on the path of your long-term investment plan.