A Second Wave of Lockdowns?

California’s reversal of economic re-opening, still partial but the most substantive yet, triggered a dramatic one-day reversal in equities from new recovery highs. Equities were vulnerable anyway, with the equity risk premium not much wider than it was at the prior high in early June. We reject the idea of a second wave as fuzzy thinking, but there are in fact accelerating fatalities in Arizona, Florida and Texas; and California had a brief episode. But the magnitudes are small. And there remains no evidence that lockdowns help. Attitudes about economic lockdowns are now politically assigned. That’s why Blue California which is suffering the least has done the most, while Red states that are suffering more have done less. The road to recovery is mostly clear because the acceleration of fatalities is occurring where the political appetite for lockdowns is least.