For nearly half a year now, pundits have been offering their viewpoints on what the Coronavirus means for both investors and the broader economy.  Many have taken to offering prognostications regarding the shape of the eventual recovery.  While I find these viewpoints amusing (my personal favourite is the “square root” shaped recovery), I cannot help but note that they are virtually all about the economy writ large.  Economic growth.  Output.  Change in GDP.  Employment and unemployment.  Basically, these forecasts are about the big-ticket indicators of economic well-being.  The thing is – as has been noted by me and by others – the economy and the market are very different things.

The question that one might ask therefore, is about the shape of the performance of capital market indicators going forward.  Looking back from about Valentine’s Day, there’s a giant ‘V’ to depict both the TSX and the S&P 500 (and various other benchmarks, too).  Is that it?  Do we go essentially sideways from here and carry on as if the storm has passed?  Is this story five months long … or are other letters on the horizon?

The dominant narrative as of late July is that the story is essentially over.  There’s little more to say.  The virus will be with us for the remainder of 2020 and well into 2021 at least, but the impact on capital markets HAS BEEN felt and HAS BEEN addressed through a swift, effective public policy response: both in fiscal and monetary terms.  In short, the dominant narrative uses the past tense.  I beg to differ.

We are only into the third or fourth inning

While there can be no doubt that the globally coordinated policy response has indeed been swift and effective, it remains an open question as to whether or not the story has ended.  If this was a baseball game, I’d guess that we are now moving into the third or fourth inning.  In my view, this is not even close to being over. Continue Reading…