The status quo remains on the level of financial markets for now, with just as much people betting that the price levels are too elevated than people taking the opposite view. In truth, this is a mere reflection of the conventional wisdom around covid19. Proof is that it has been a devastating health concern, but it might just join the ranks of any other bad flus once a vaccine is found.

According to analysts, the US market currently prices 2-year forward earnings just ~15% down from predictions made before the covid19 pandemic. While it may sound optimistic, it fully backs the idea that covid19 may have come and gone. If not, markets could reset back by 10% easily, and 20% if systemic stress was to resurface.

Economically, unemployment and bankruptcies are here to remind us that the shock is for real. Equally, the pandemic may just have acted as an accelerator of trends that were already well established. Offline education and retail already had one step through the door. Banks also had been quite challenged by the digitalisation of their world, with only regulation the last pillar standing in the way. All-in-all, their business will simply morph into something best performed by new entrants.

What smart money think of this? Not much apparently. While aggressively positioning on the buy after the first QE announcements, professional investors started to wind down their positions but only mildly since the end of Apr20. Everything suggests that they all start to look past the pandemic and search for the next catalyst, whether it is the rekindled China-US spat, the EU monetary system implosion, social uprising, or Government debt crisis.

What the pandemic let appear more blatantly is that the exponential increase of movements of goods and people, a by-phenomenon of globalisation, is probably a thing of the past. We should welcome the changes toward more environmentally-viable tourism, international business, and supply chain that would help re-establish a social balance at home before thinking to export disruption abroad.

Markets will do just fine if ourselves we keep our heads above water.

360 Advisory – Markets