By Bloomberg macro strategist and former Lehman trader, Mark Cudmore
Monday’s global equity losses were a preview of the coming months rather than just a case of pre-election jitters. Investors are finally realizing that the coronavirus is a 2021 story too.
After the initial weeks of fear, it was easy for many wealthy people to dismiss the pandemic as an overblown threat. There have been fewer than two Covid-19 fatalities for every 10,000 people on the planet, meaning it’s unlikely any random individual knows someone personally who has died from the disease. The majority of those who contract the virus experience relatively mild symptoms or even none at all.
On top of that, the financial elite saw their savings and investments bolstered by extraordinary stimulus packages and were most likely to be be able to easily transition to a remote-working lifestyle, supported by their employer.
And then there’s been the constant promises of a vaccine being ready by year end. All this combined to mean that unless they experienced the trauma of personal loss, the most accessible narrative was that the pandemic was a one-off shock to earnings that would soon be recovered as life normalized again.
But the world isn’t going to “normalize” any time soon. Quite the opposite. As of Sunday, the seven-day average daily case count was 432,475 -- up from 356,343 a week earlier. At current trends, daily case counts will be regularly above half a million from later this week (we know that the highest counts usually come Wednesday to Friday). The running mortality rate for those global cases is 2.68%. That rate should continue to drop as testing improves but late November is still on track to see daily fatalities above 10,000 on a too-frequent basis.
This is completely separate from the potentially much larger problem of overloaded hospital systems and the dire related consequences of society forgoing other treatments and check-ups. These factors will combine to severely alter consumer behavior well into 2021, whether mandated by government restrictions or not.
There will be winners and losers from the rotation to a new type of economy but the transition will overall result in a massive real net cost on society and for many individuals. Many established businesses will go bankrupt and millions of jobs will be lost, destroying the consumer base.
But there’s a bigger problem for optimistically priced stocks. Everyone has been hyping up the arrival of the vaccine on the assumption that it will be a game-changer. But vaccinating a sufficiently large part of the global population to resume “normal” activities will be a long, drawn-out process - spanning many months or even years - rather than an event. Especially as many people appear reluctant to be early in the vaccine queue.
The K-shaped recovery has helped the fortunate remain relatively insulated from the pandemic but the financial bubble is set to burst. And none of this even hinges on the complacent pricing around the U.S. election risks.