To vax, or not to vax? To vax, or not to vax? http://www.federatedinvestors.com/static/images/fhi/fed-hermes-logo-amp.png http://www.federatedinvestors.com/daf\images\insights\article\vaccine-small.jpg August 9 2021 August 3 2021

To vax, or not to vax?

Vaccinations are complicating students' return to campus.

Published August 3 2021
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Apologies to Shakespeare’s “Hamlet," but the question of vaccinations is vexing college administrators planning for the return of the student body to campus in coming weeks. Their soliloquy: “To mask, perchance to dream (of an end to the delta variant), ay, there’s the rub.”

As the end of summer approaches, schools are looking to return to a more normal academic experience. That’s important, as a new report from the consulting firm McKinsey concludes that pandemic-era K-12 students lagged their pre-pandemic peers by around half a year in both reading and math skills, as in-person instruction is more effective than remote learning.

Delta wild card The Covid-19 delta variant is looming over back-to-school plans. It is more than twice as contagious as the original version, and it now accounts for more than 80% of all new infections in the U.S., which have quadrupled over the past month. At the same time, vaccination rates have plunged by 85% over the past four months, from 3.5 million jabs per day in April to 500,000 daily jabs today. But vaccinated people account for only 3% of hospitalizations, as the two-shot Pfizer and Moderna vaccinations have proven highly effective against the delta variant thus far.

Parents desperately want their kids back in school, but the Centers for Disease Control & Prevention (CDC) is recommending masks for teachers, students, staff and visitors, regardless of vax status. Vaccinated people infected with the delta variant can still spread it, according to CDC director Dr. Rochelle Walensky: “The big concern is that the next variant that might emerge—just potentially a few mutations away—could evade our vaccine.”

No vax, no class? With many colleges facing falling enrollments and financial pressure, the decision to potentially mandate vaccinations is an important one. Schools with no worries about enrollment levels have mostly required their students to get vaccinated before returning to campus. All Ivy League universities, for example, are requiring the vaccination for a return to in-person learning.

For top-ranked schools of Ivy League caliber, enrollment is a money game. As we learned last year at this time when we first studied this issue, the competitive situation is fraught with financial peril for colleges, as they risk seeing some of their students transfer to another school if they’re offering too much remote learning versus in-person instruction. This has incentivized many private institutions around the country to implement a vaccine mandate. For the most part, there is a political divide on this contentious issue, as the colleges choosing to enforce vaccine mandates are in blue states, while a total of 15 red states, including Oklahoma, Nebraska, Kansas, Mississippi, and Alabama, do not have a single university that has announced a vaccine requirement.

Toga, toga! High vaccination rates contributed to the reopening of the economy, with movie theaters, bars and restaurants and baseball stadiums entertaining patrons this summer. Likewise, students and colleges are similarly hoping for a return to normal this fall, although mask mandates and social distancing could continue until we see the delta variant begin to recede. Universities likely will make decisions based on the vaccination rate of their student bodies. Living on campus came with restrictions at many colleges last year, with some offering only single-occupancy dorm rooms and others barring students from visiting other residence halls. But college officials are expecting both dining and residence halls to return to capacity this fall.

Let the football tailgates begin Covid-19 derailed nearly every aspect of college athletics for the last 15 months, and football and basketball are colleges’ cash cows. The good news is that after being deprived of a real college athletic season, fall sports look to resume their normal timeframe. NCAA guidelines for summer athletic activities due to higher vaccination rates and declining Covid cases nationwide recommend that fully vaccinated student-athletes forego masks and physical distancing. Additionally, if 85% of student-athletes and staffers achieve immunity through vaccination or prior infection, then masking and social distancing are no longer necessary. 

Strong Back-to-School retail sales season on tap? Because school districts and colleges in many parts of the country are mandating in-person attendance this fall, we’re expecting strong back-to-school (BTS) retail spending. According to the National Retail Federation, BTS spending this year could reach a record $37 billion. Deloitte expects a 16% year-over-year increase this year, a significant uptick from the 3-5% annual growth rates of the past four years. Consumers are expecting higher costs due to inflationary pressures, but because of elevated savings rates and generous government transfer payments, those with a jail-break mindset are happy to pay the higher prices. The BTS season runs typically from mid-July to mid-September, but because of well-publicized supply-chain shortages, parents and students are ordering their electronics, apparel and dorm-room furnishings early, lest they face a disappointing out-of-stock situation.

Research assistance provided by Federated Hermes summer intern Gilles Gouraige.

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Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

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