Wall Street has bet on a swift recovery from the coronavirus pandemic, anticipating that Americans will fill up restaurants, book vacations, board planes and buy new wardrobes as soon as they get Covid vaccines.
Investors pushed the S&P 500 to a record at the end of 2020, with the index rising more than 70% from the low in March when the pandemic brought much of the economy to a halt.
Grocery chain Albertsons, however, made a call that flew in the face of Wall Street's brisk timetable for recovery. It raised its forecast last week for the year ahead, saying it expects customers to continue to do a lot of home cooking in the months ahead.
And now, a sluggish rollout of the Covid vaccines threatens Wall Street's rosy outlook. The U.S. had administered about 16.5 million doses as of Wednesday, less than the 20 million it planned to complete by the end of 2020.
New complexities with the disease could also jeopardize the path to some degree of normal: More contagious variants of Covid have emerged. Los Angeles has become a severe hotspot. The U.K. has locked down again. And U.S. economy saw job losses in December for the first time since the pandemic shut down the economy in the spring.
With President Joe Biden now in the White House, he takes the reins of a national effort to vaccinate the majority of Americans. He has pledged to have the country administer 100 million doses of the vaccines within the first 100 days of his presidency. He's also proposed a $1.9 trillion stimulus package that could amount to a shot in the arm for the economy.
The push and pull between wildly different economic forces makes it difficult to predict how consumers will behave and how companies should plan, said Jack Kleinhenz, chief economist at the National Retail Federation.
Take the holiday season. The U.S. reported a negative jobs report for the first time in eight months in December, yet holiday sales far surpassed the most optimistic forecast of the industry's major trade group. They rose by 8.3% compared with 2019, higher than the NRF's expectations for growth of between 3.6% and 5.2% year over year, as shoppers sought to make a challenging time more cheerful.
"It's really quite phenomenal given the extremes that this economy has gone through," Kleinhenz said. "We just couldn't really quantify the psychological factors that are going on in people's homes and households."
Consumer behavior and spending will be shaped by current events in the months ahead, too. As news of the Covid vaccines came out in late 2020, the percentage of U.S. consumers who expected to practice social distancing for at least another six months dropped from 49% in late October to 34% in early December, according to a weekly survey by UBS Research.
However, that rose to 40% in early January with reports of a confusing and slow rollout of the vaccines and more contagious strains of Covid-19, according to UBS.
December was the deadliest month of the pandemic in the U.S. — but that hasn't been reflected by Wall Street. Since the presidential election on Nov. 3, the S&P 500 has risen 15% to historic highs. Investors have been buoyed by optimism about the vaccines, with some anticipating the worst of the pandemic could be over by the second quarter.
Some economists have described a K-shaped recovery — a sharp split of industries and consumers into two groups with dramatically different fortunes. On the one hand, the stock market has boomed and higher-earning Americans have been able to sock away savings and buy new houses with money they'd typically spend going out to dinner or traveling. On the other hand, Americans who make low wages by working at hotels and restaurants have lost their jobs or had fewer hours, causing them to struggle or barely scrape by.
Yet more than half of stock and mutual funds are owned by the top 1% of earners, according to the Federal Reserve.
Low-income Americans are hit harder by every recession, JPMorgan Chase CEO Jamie Dimon said at a virtual conference hosted by the National Retail Federation last week. With this recession, however, he said that gap has been dramatic — and it will influence the recovery.
"In most recessions, the people who lose their jobs are across the whole income spectrum," he said. "In this recession, almost all the job losses are people making $15 an hour or less."
Job losses have been especially concentrated among the poorest Americans. Nearly 40% of people living in households with an income of $40,000 or less reported a job loss during the pandemic, according to an annual report by the Federal Reserve.
Americans who work minimum wage jobs for $15 an hour or less bring in under $32,000 or less a year — leaving little room to put away savings or cover the cost of medical insurance, Dimon said.
He said many Americans don't fully appreciate the depths of the downturn in inner-city neighborhoods where unemployment has risen to 20% and 25% and kids don't have laptops or reliable internet to attend school remotely.
"Think of the massive suffering in places a lot of us just can drive by every day," he said.
He said those sharp inequalities have existed for a long time, but the police killing of George Floyd this spring highlighted them and Covid-19 has exacerbated them.
That has implications for companies who may cater to a larger number of budget-strapped customers. Walmart Chief Customer Officer Janey Whiteside said almost half of its customers surveyed in November said they worried about the health of the economy and 40% didn't expect "any kind of speedy recovery."
She said at the NRF conference that may mean customers gravitate more than usual toward smaller package sizes or make purchases based on price.
But even as some Walmart consumers watch their budgets, the country's largest grocer saw its U.S. same-store sales grow by 6.4% in the third quarter. Whiteside said the retailer's focus on value may resonate more with consumers now.
The fortunes of industries will vary dramatically, too. Airlines, restaurants, movie theaters, hotels and other companies that have been temporarily shuttered or have hemorrhaged money because of Covid-19 must make up for many months of lost sales and cover increased labor costs.
In the movie industry, for example, high virus rates and slow vaccinations could mean another round of delays for blockbuster features needed to draw customers and lift revenues. Already, the pandemic has disrupted the typical pattern of movies hitting the theaters before they arrive on streaming platforms or on-demand services that allow customers to watch from home.
Warner Bros. decided to make its entire 2021 slate available in theaters and on HBO Max on the same day. Disney plans to release "Raya and the Last Dragon" in theaters and for $30 on Disney+ on March 5, too.
Movie theater chain AMC is trying to raise cash to avoid bankruptcy. Its shares have plummeted by nearly 60% over the past year and are currently trading at less than $3.
Airline executives warn they face difficult months ahead as many customers are still hesitant to book flights. They have called the pandemic their worst-ever crisis and analysts estimate last year's losses topped $35 billion.
United Airlines CEO Scott Kirby said it's too early to tell when the carrier will break even. He said it will take a "critical mass" of people getting vaccinated and a medical conclusion that the vaccines keep you from spreading Covid.
"Until we can put, as a society, coronavirus in the rearview mirror, it's going to continue to be a tough environment for aviation for everyone who's involved in travel, tourism and leisure," Kirby said in an interview Thursday on CNBC's "Squawk Box."
Delta Air Lines CEO Ed Bastian said during a company call last week that bookings will likely pick up if vaccines are distributed in the spring and travel restrictions are lifted, driving the carrier to break even by the second quarter. Yet he said it's still early with the vaccines and company leaders "haven't really seen much in the form of changed behaviors."
Some measures intended to make travel safer could hurt demand in the short term. For example, the CDC, starting Tuesday, will require all U.S.-bound travelers, including citizens, to show a recent negative Covid test before flying to the U.S.
United's chief commercial officer, Andrew Nocella, said Thursday on a call with investors and analysts that the rule has hurt bookings for some beach destinations, particularly in Mexico.
Many shopping mall retailers have seen their costs rise and sales shrink as consumers limit trips to stores, buy more online, and opt for off-mall destinations like big-box retailers with a broad assortment of goods from groceries to laptops.
It hastened the demise of some retailers, such as home goods retailer Pier 1 Imports, which had to liquidate and shutter all of its stores. And it forced a bankrupt Neiman Marcus to permanently close its store in Manhattan's glitzy Hudson Yards shopping mall just a year after it threw a swanky party to celebrate its opening.
As Covid viruses and deaths remain high, R.A. Farrokhnia, professor at Columbia University's business school said, consumers still have fewer places where they can safely spend their savings or any additional stimulus dollars.
"You can't go to restaurants," he said. "You can't travel. How many washing machines do you need?"
When vaccinations reach a critical number of Americans, companies will likely see some pent-up demand for activities that people have missed, such as going on vacation, Farrokhnia said. However, he said it will be difficult for some experience-driven companies to make up for the many missed revenue opportunities, such as trips not taken and concerts not attended.
"You haven't been able to travel since March, but it's not like as soon as the pandemic is over, you decide to take off and travel for a full year and go on 10 different trips and a bunch of cruises," he said. "So that money that got saved up, it's not like it will be deployed back into those industries that are being affected severely now."
Consumers have picked up new habits and it may take time for them to return to their old ways — even if they have money to spend.
During the pandemic, people have taken up socially distanced hobbies, such as hiking and golf. They have tried new recipes and flavors as they eat more meals at home. They have adopted new pets. And some have discovered the joys of having a clearer calendar, instead of shuttling kids to extracurricular activities or spending numerous nights out to dinner.
Scott McKenzie, Nielsen's head of global intelligence, said he expects the "homebody economy" to persist through much of this year and perhaps, beyond. He said it will take time for people to freely open up their wallets and to fly and go out to the same extent as they did before the global health crisis.
"Even if I can go to a restaurant in a more safe environment than what I've been able to previously or not at all previously, will I?" he said. "Have I gotten used to eating more at home, treating myself more at home? The answer to that at least through '21 will be yes."
For example, he said, he and his wife who live outside of London have learned how to cook better. They've discovered butchers with "restaurant quality" meats and made meals that are cheaper and tastier.
Albertson's raised its forecast for the year, noting that companies are extending work-from-home policies and more people want to have flexible schedules. The company's CEO, Vivek Sankaran, said on an earnings call that will drive demand for breakfast and lunch items to eat at home, such as cereal, eggs and pre-made salads.
That conflicts with behavior by some investors. Their appetite for some stay-at-home stocks has dampened in recent weeks as the U.S. has begun to administer the vaccines. Peloton, for example, was up more than 300% from the start of 2020 to the beginning of the first vaccine distributions in the U.S. in mid-December. The shares have been up only 33% since then. Zoom, which was rose more than 480% from the start of 2020 to the start of the first vaccines, has been down nearly 4% since then.
To be sure, there are some exceptions — such as streaming service Netflix, which hit a fresh high this week.
Plus, McKenzie said the vaccines alone won't repair a broken economy. "It's whole businesses and industries that have been gutted," he said. "This isn't just a 'vaccine fixes everything.' I know that's what people wish it could be."