December 2021

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Patten & Patten extends to you its sincerest wishes for the happiest of New Year’s!  We look forward to seeing you at our 13th Annual Investment Symposium on Thursday, February 24, 2022 at the Westin Downtown Chattanooga.  In addition, we are excited to begin hosting meetings in our new office space:  5Patten & Patten extends to you its sincerest wishes for the happiest of New Year’s!  We look forward to seeing you at our 13th Annual Investment Symposium on Thursday, February 24, 2022 at the Westin Downtown Chattanooga.  In addition, we are excited to begin hosting meetings in our new office space:  555 Walnut Street, Suite 280, Chattanooga, TN 37402.  We hope to take occupancy by February 1, 2022.

As technically defined, the COVID-19 pandemic will unfortunately persist through 2022.  The virus will continue to circulate, and there will be more waves of infections from future variants.  Additionally, more people will pass away from the virus, and it will remain important to protect those most vulnerable.  However, the pandemic is in transition to a phase that is considerably more encouraging.  In epidemiology, an Endemic virus is one with an effective Reproductive Rate less than or equal to 1.0.  On average, one person infects only one other, and the spread of the virus does not increase exponentially.  This results in a stable, baseline level of infections.

Like the common cold, which is a coronavirus, SARS-Cov-2 will continue to circulate, but each future variant will, hopefully, prove less virulent.  As more people develop immunity, most viruses eventually reach the Endemic Phase.  We believe the COVID-19 pandemic is undergoing this transition from its Acute Phase to its Endemic Phase, and as this transition gets confirmed, there are profound implications for investors.

Scientists now fully understand how the virus attacks the body, and physicians have an effective standard of care with which to combat the illness.  This is in stark contrast to one year ago.  At that time, the first vaccine had just received approval, but the health care community was still in discovery mode.  There were uncertainties associated with vaccine distribution.  Today, over 4 billion people have received at least one dose of a vaccine.  The two mRNA vaccines have proven quite effective at preventing severe illness.  Recent studies indicate both prior infection and vaccines confer some long-term protection (i.e., durable immunity) against severe illness.  Immuno-compromised people now have access to highly effective monoclonal antibody cocktails.  Finally, highly effective oral antivirals will soon be available to protect against infection and reinfection.

The transition to the Endemic Phase of the pandemic will likely prove gradual and uneven, with interruptions every few months from new variants.  Economic activity in 2022 could resemble a dance in which one takes two steps forward, one step backward.  Since the pandemic began, economic growth has been inversely correlated with the prevalence of cases and hospitalizations, and we expect this relationship will continue.  Over time, however, the degree of correlation should wane.  The Endemic Phase should facilitate greater re-opening of global economies, although the approach to restrictions is likely to remain uncoordinated and inconsistent.  Consequently, we expect further disruptions to supply chains and global trade.  However, as more countries abandon overly restrictive mitigation measures, supply chain disruptions should prove shorter and less impactful.  Nevertheless, we expect the lack of coordination will contribute to heightened volatility in 2022.

The stock market posted powerful returns in 2021, but performance was concentrated among a small group of large capitalization technology stocks.  The average stock has actually corrected significantly from 52-week highs.  As the global economy recovers from fewer virus-related restrictions, we expect stock market leadership will broaden.  At the same time, the market must confront headwinds associated with reduced liquidity from the Fed and expiration of fiscal support programs.  These developments should be offset by greater economic activity as the world emerges from the depths of the pandemic.