First and second graders born during their pandemic are worse at math and reading

First- and second-graders continue to underperform pre-pandemic peers on math and reading per NWEA 2024-25 assessments: math has inched up each year while reading has been stagnant since spring 2021. Federal COVID relief for schools produced mixed results; districts that recovered reading cite targeted phonics instruction and frequent literacy assessment, but broader societal shifts (e.g., reduced caregiver reading — a 2024 UK survey found <50% of under-5s regularly read to, a 20-point drop vs ~12 years prior) and lost early-childhood experiences likely suppress literacy gains. Cities and states are expanding early-education policies (California universal pre-K, NYC pre-K to 2-year-olds, New Mexico near-universal free child care) as part of the response.

Analysis

The persistent reading stagnation in early cohorts is likely to reallocate where and how literacy inputs are purchased: school districts and municipalities will lean toward bundled, outcome-linked literacy solutions (phonics curricula + assessment + training) rather than one-off book purchases, because budgets will be judged on measurable recovery rates. That favors vendors with SaaS‑like recurring contracts and embedded assessment data, and penalizes pure-print incumbents that can’t prove efficacy within a single budget cycle.

A second‑order labor effect is imminent: scaling universal pre‑K and expanded toddler programs will materially increase demand for certified early‑childhood staff, pushing wages and certification spending higher over multiple years. Expect private providers with employer-contracted childcare (stable billing, pricing power) to absorb margin pressure better than mom‑and‑pop centers, while online certification and micro‑credential providers capture an outsized share of the upskilling spend.

Finally, the policy response (state pre‑K rollouts and childcare subsidies) creates both demand and fiscal vulnerability: providers that are dependent on upfront parental out‑of‑pocket payments will see secular tailwinds, but those reliant on episodic municipal grants face reimbursement timing and political risk. This bifurcation sets up a multi‑year winners/losers dynamic where contract structure and data‑driven outcomes will determine market shares, not simply product quality or brand recognition.

Key Decisions for Investors

• Long BFAM (Bright Horizons) — buy shares or a 12–18 month call spread to capture increased demand from employer‑paid childcare and municipal pre‑K partnerships. Entry: market / tranches on weakness. Target: +25–35% in 12 months if utilization and contract wins accelerate; downside: -20–30% if wage inflation compresses margins or reimbursements lag.
• Long SCHL (Scholastic) — accumulate shares or buy 9–12 month calls; focus on summer program and district reading-material cycles where curriculum adoption can reaccelerate. Target: +20–30% as schools re‑invest in literacy kits; risk: digital substitution and weaker district budgets could cap upside.
• Long APEI (American Public Education) or LRN (Stride) — buy 18–24 month LEAP‑style exposure (shares or long‑dated calls) to play certification/upskill demand for early‑childhood staff and remote remediation tools. Reward: material upside if state rollouts require rapid workforce scaling and districts adopt online PD; risk: slower certification take‑up or public hiring freezes.
• Hedge / risk monitor — establish a tactical watchlist for municipal credit stress in the most aggressive pre‑K states (CA, NY, NM). If municipal spreads widen >50bp vs prior quarter, reduce cyclically exposed edu names and (optionally) buy protection via short duration muni ETFs or credit hedges; catalyst window: next 6–24 months around budget cycles.