Weekly Market Compass: As Israel leads the way in COVID-19 vaccinations, events such as concerts and theatre performances return after an 11-month ban.
When I was in business school back in the late 1990s, I found that one of the most heavily used — and effective — teaching tools was the case study. Learning from what other companies and industries did or didn’t do was incredibly helpful in gaining understanding and insight.
Right now, I’m gaining understanding and insight from a very different case study: Israel’s success with its COVID-19 vaccine program. But this is not in a business school textbook — this is happening in real time. Specifically, I’m looking to Israel as a case study in effective vaccine rollout and the impact on health and the economy. In my view, Israel is the “gold standard” in this endeavour.
Israel leads the world in vaccinations
Israel far surpasses other nations in terms of the percentage of the population that has been vaccinated. By February, 84% of the elderly population (70 years and older) and slightly less than 50% of the overall population had been inoculated against COVID-19.1 Now that is still short of the herd immunity level, which medical experts estimate is between 56.5% and 81.5% of the population.2 However, COVID-19 infections in Israel are down dramatically.
And so Israel is starting to re-open its economy including hotels, malls, markets, gyms, and museums. Those who have completed the proscribed vaccine regimen (or who have recovered from the virus) are beginning to enjoy a whole new world. Israel is issuing them a “Green Pass” that allows them to attend concerts and other cultural events, which are being held once again following an 11-month ban (while still following precautions such as masks and social distancing).3 For example, last Monday a theatre in Jerusalem had already treated its audience to a full dress rehearsal of a Noel Coward play scheduled to open later that week.
Other countries see progress in vaccination efforts
I’m confident we can look to Israel for indications of what to expect when enough of the population of other economies, such as the United States, have been inoculated. I’ll be following the Israeli economy closely in coming weeks, as I expect the re-opening to result in a strong increase in consumer spending — and offer a window into the future for other countries. For example, the UK has made significant progress with its vaccination program, and the British prime minister said last week that he was optimistic that the UK could have a full re-opening in June. Similarly, substantial progress has been made in the U.S., and the Biden administration expects that everyone who wants to be vaccinated will have access to a vaccine by late summer. This could occur even more quickly now that Johnson & Johnson’s COVID-19 vaccine — which requires only one dose —- was approved by the U.S. Food & Drug Administration this past weekend, with 3 million to 4 million doses ready to ship this week.4
Anticipation grows for a return to normalcy
People talk about their “bucket list” of activities that they want to do before they die, and these lists often include once-in-a-lifetime adventures. Now, I’m hearing people talk about their new bucket lists — things they want to do when the pandemic is over. But in addition to elaborate adventures, they are excited to get back to the activities that made up our daily lives back in 2019: things like theatre, concerts, movies, travel, dining out, and even going to the mall — the experiences that add richness and variety to everyday life.
Another helpful indication of what the future may hold can be found in the UK. As I mentioned earlier, British Prime Minister Boris Johnson announced last Monday a “road map” for reopening the UK economy in the coming months. In particular, he shared that international trips could resume as early as May 17. It proved to be a clarion call for UK consumers to make travel plans — immediately. Several different European airlines saw a major increase in flight bookings; Tui, the largest travel company in the world, experienced a 500% increase in bookings overnight following Johnson’s announcement. Virgin Atlantic Airways also experienced a major increase in online ticket sales that day, while European economy airline Easy Jet reported that airline ticket sales rose 337% and holiday package bookings rose 630% in the hours after Johnson’s announcement.5 EasyJet CEO Johan Lundgren explained that there is clearly “pent up demand for travel.”6 That might be a bit of an understatement.
Consumer spending: a ‘tightly coiled spring’
At the expense of sounding like a broken record, I think of consumer spending as a tightly coiled spring; there is great pent up demand to spend, and the wherewithal to spend, given the elevated household savings rate in the U.S. and other countries. In the U.S., consumer savings is at 20.5% as of January 2021.7 U.S. personal savings nearly doubled as a result of the pandemic, rising from $1.2 trillion at the end of 2019 to $2.3 trillion at the end of 2020.8 Other countries have experienced a similar phenomenon in terms of very elevated savings. Imagine the strength of the economic recovery if consumers spend just a portion of their savings once the economy re-opens. And I think they will after suffering from a massive case of cabin fever for what is going on a year now.
In my view, anticipation of this strong rebound is the driving force behind the quick rise in the 10-year U.S. Treasury yield that made headlines last week. As I’ve said before, multiple factors impact the yield on the 10-year Treasury — not just inflation. In fact, in my opinion, the most important factor right now is the very bright future of economic re-openings that we are just starting to see unfold in Israel. That does not justify the stock market sell-off we saw last week. It’s almost as if stock market investors forgot that a steepening yield curve is considered a positive indicator. Rather than fear an elevated yield on the 10-year U.S. Treasury, I believe investors should assume it will occur and that it could come with significant volatility. However, it should be positive for cyclical and smaller-cap stocks, which I expect are likely to perform well in such an economic recovery.
1 Source: The Times of Israel, “Israel holds its first outdoor concert, for COVID ‘green pass’ holders only,” Feb. 25, 2021
2 Source: The Lancet
3 Source: The Times of Israel, “Israel holds its first outdoor concert, for COVID ‘green pass’ holders only,” Feb. 25, 2021
4 Source: The Hill, “White House to ship 3 million to 4 million doses of Johnson & Johnson vaccine to states,” Feb. 24. 2021
5 Source: The Guardian, “Holiday bookings surge in UK after lockdown exit plans revealed,” Feb. 23, 2021
6 Source: AP, “Britons rush to book holidays amid plans to end lockdown,” Feb. 23. 2021
7 Source: US Bureau of Economic Analysis
8 Source: Statista Research