Feature Stories | Jul 10 2020
With stocks markets now pricing in a V-bounce economic recovery, while the global case-count rises unabated, what are the prospects for stock markets being right? And what further considerations of a life after covid have since developed?
-Markets pricing a V
-Further changes to expect
-Green and digital
-Slowbalisation and a multi-polar world
By Greg Peel
When FNArena published Life After Covid Parts I and II (links below), major stock markets had bounced about half way back from their “covid crash” bottoms, as forward-looking investors hunted bargains and made the assumption the economic shock would be sharp but short.
We might call it phase one of the market recovery, as investors continued to avoid clear virus losers such as airlines, bricks & mortar retailers, banks and energy companies, but jumped into stocks deemed either little affected or unaffected, and in particular, positively affected, such as the likes of Amazon and Zoom.
We have since experienced phase two, in which the aforementioned losers have also been snapped up as economies across the globe began to reopen, sooner than most had expected, while winners have powered on further. In the US, the S&P500 almost rallied back to square for the year until a more recent consolidation period, while the Nasdaq has surged on to ever new all-time highs.
Phase one was not only considered by many to be “the greatest investment opportunity of a lifetime”, in a belief stock prices had fallen too far, too fast, but also considered a bit of a no-brainer, given massive monetary and fiscal support. That support has continued to provide a base for phase two, although the wary are now looking ahead with trepidation to the expiry date of fiscal programs.
In the US, economies began to open faster than assumed largely due to worker protests in states in the south and west that were little impacted by the virus as a health threat, but greatly impacted by the lockdowns as an economic threat. Politicians bowed to the pressure. We now know the result.
It’s not a “second wave”, rather a continuation of the first wave, which began in the intensely populated north-west and has now rolled further across the country as social distancing and other measures were largely ignored.
In Australia, a far swifter and more coordinated response to the virus led to gradual re-openings – a risk taken in full knowledge that a second wave risk was high, but that the country was now much better prepared to contain it.
Victoria is yet to prove this to be so.
Part III of Life After Covid picks up where Parts I and II left off – with a stock market continuing to favour an economic V-bounce even as the global case-count rises unabated and the end of emergency fiscal measures looms.
What Has Changed?
Shocks that change the economic system are generated by the economic system itself, notes Danske Bank, by skewed incentives and institutions. The coronavirus was not a result of skewed economic or political incentives but a true random shock. Yet rather than igniting regime change, the crisis has galvanised pre-existing trends.
Workers were already migrating to home offices and groceries were being ordered online, and sovereign debt burdens were increasing as a matter of fact.