How Will the Delta Variant Impact the Stock Market Going Forward?

Concerns are rising yet again about COVID-19. And it's primarily because of the delta variant. In this Motley Fool Live video recorded on July 21, healthcare and cannabis bureau editor-analyst Olivia Zitkus and Motley Fool contributor Keith Speights discuss how the delta variant might impact the stock market going forward.

Olivia Zitkus: Let's chat a little bit about the delta variant. According to the CDC this week, 83% of all new COVID cases in the US are now caused by this highly contagious variant. It's more contagious than previous strains that we've seen in the country. That's up from just 50% of new cases just two weeks ago. We've seen a little bit of it already.

But how do you think the emergence of the delta variant will impact the stock market going forward? What do we need to be ready for?

Keith Speights: Yeah. As you mentioned, Olivia, the delta variant is spreading rapidly. It's proving just how highly transmissible it is, how contagious, it is. We're seeing that. In terms of how this might impact the stock market, I would say the most optimistic scenario is that the delta variant will have little impact on stocks.

Now, we've already seen stocks fall somewhat even earlier this week because of concerns about the rising number of COVID-19 cases due to the delta variant. I don't know that optimistic scenario is the one that's going to take place. I think we're going to see some impact, but still it's possible and maybe even probable that any declines with the stock market will only be short-lived. I think that's a realistic scenario there.

But then let's turn to the more, or maybe the most, pessimistic scenario. I think the most pessimistic scenario is that we have a huge stock market crash due to the delta variant. In this really pessimistic scenario, we would probably see the governments across the world reinstate lockdowns like we had last year. That would almost certainly stop the economic recovery in its tracks. Everyone who has been counting on a comeback would be sorely disappointed.

In that scenario, the stock market would just plunge. That wouldn't be bad news for all stocks, of course, I think vaccine stocks such as Pfizer (PFE -3.85%) and Moderna (MRNA -2.45%), they would continue to rise more than likely because the demand for vaccines would increase. Stocks like Zoom (ZM -0.99%) and, say, maybe Teladoc Health (TDOC -2.91%) will probably also likely benefit, those stocks soared last year. I would think you would see their stocks do quite well in that doomsday scenario.

But I personally don't think this pessimistic scenario is going to happen. I think, for one thing, individuals who are fully vaccinated are far less likely to have severe cases of COVID-19, even with the delta variant. I don't think we'll see a return to what we experienced in 2020. I think we're just in a different place now. We also have better treatments for COVID-19.

I certainly hope that's not the case that we go down that path and I don't think that will be the case. My best guess is that we're going to see something in between these two extreme scenarios for the stock market.

I think concerns about the delta variant could cause and probably will cause some increased volatility in stocks, but without causing an outright market crash. I could be totally wrong on this, of course. But either way, buying stocks of solid companies with great long-term prospects and keeping your focus on the long term, I think that's the best investment strategy either way.

Zitkus: I totally agree with you, Keith. This is really interesting because there have already been concerns, even without the delta variant hovering in the background. There were already concerns about fluff in the market and the potential for a crash.

But I think you're right. I think we're in a really different place than we were in terms of COVID and COVID treatments and vaccines a year ago. It's hard to predict, but it could be an interesting rest of the summer. In particular, I just keep telling myself, just keep swimming, keep investing.

In my case I got the time to keep picking stocks that I know well and and trust will fare one day just fine when COVID, fingers crossed is actually truly gone. [laughs] Because that day will come and the market will continue to go up and down and have down years anyway. We can't control that. We have to pick for the long term. I think that's the right message regardless with what happens with delta.

Speights: Sooner or later we will have another market crash, it's inevitable. I don't think it's going to be caused by the delta variant, but I don't think you change your investing strategy.