ONAfter more than a year of covid-19 being classified as a pandemic, there is growing evidence that the disease can have permanent effects in some people. In some cases, these “long-haul” patients experience symptoms for months after they become infected with the disease. It is not yet known why some react this way and others don’t, and how long the symptom usually lasts in these cases, but it has raised fears that Covid will be with us for much longer than most people expected.
This is and remains a human tragedy that should not be forgotten, but my job here is to examine the possible economic and market effects of global developments. In this context, the question is whether or not there will be a long-term impact on economic conditions or markets and the answer so far seems to be no.
The first evidence of this is the obvious: the S&P 500 made up all of its losses five months after hitting its lows and has since continued to move higher, making new all-time highs. Yes, there have been some retracements in the process, and yes, it can be argued that the current multipliers are suggesting that the jump has gone a little beyond itself, but we wouldn’t be where we are if there was evidence for it Really, there would be permanent damage to the economy.
The notion that what we experienced was a brief, sharp shock rather than permanent damage is supported by examination of similar events in the past. research by Natalia Martin Fuentes and Isabella Moder, economists at the European Central Bank (ECB), suggest that a full and rapid recovery from shocks to the system like this is the norm, while the damage that the system is inherently causing by crises is like the 2007/08 financial crisis, often lasts for decades.
This is an important context for assessing whether the current values represent an overshoot of the logical mark or even a bubble that is about to burst. The work of Fuentes and Moder suggests that this is a short, sharp rebound within a longer, broader rebound. So reaching new highs makes up for lost time in this protracted rebound and really is nothing to worry about. It is an acceleration of an existing trend, driven by fiscal and monetary stimuli that are contributing to an already strong recovery.
The same theme of the pandemic, which is accelerating an existing trend, applies to the changes in economic behavior that occurred over the past year and the disease is expected to last. I suppose your view on this will depend on your view of the emerging trends before the pandemic.
If you think increased automation and the productivity gains that it brings is a good thing, you will get more of it. If, on the other hand, you have focused on the fact that the immediate negative effects of these changes will fall disproportionately on young people and people of color Brooking Research indicates that your focus will be that this trend, too, is now accelerating.
This will sound harsh, but the truth is that the market doesn’t care about the equality impact and won’t do so until the growing pool of impoverished people pushes growth down. The cold reality is that the stock market is ultimately driven by corporate earnings, and anything that increases them will produce a positive response, no matter how that may affect some people. With that in mind, the acceleration in productivity gains that has resulted from Covid is ultimately a good thing, at least in terms of the marketplace.
There are a few ways the pandemic has slowed progress towards what was once considered desirable, or will change behavior for good. For example, I don’t think the trend towards online learning will pick up or even continue once things are back to normal and it will take some time for handshakes to recover. The existing trend towards remote working will also accelerate, with the potential for long-term negative effects on the commercial real estate market. However, these particular long-haul impacts will be limited to specific areas and / or have little or no impact on stock prices.
While Covid-19 and its variants are likely to be with us as a society for some time, and its effects will linger on for some individuals, the effects on the market most likely will not drag on.
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The views and opinions expressed are those of the author and do not necessarily reflect those of Nasdaq, Inc.