The COVID bull market shows no signs of ending
Photo by Hans Eiskonen on Unsplash
When COVID-19 first hit, it sent markets around the world into shock. Stock markets lost a massive chunk of their value. And for all intents and purposes, it looked like we were heading into another depression.
But that’s not how things worked out. Yes, the market did crash and, yes, a lot of people lost money. But by the time the summer came around, many stocks were back to pre-crisis levels. And it looked like the market might go even higher.
Just looking at the fundamentals, you wouldn’t expect this outcome. Unemployment was at record levels during the height of the pandemic. And the economy contracted a whopping 30 percent in the quarter – the biggest fall in history.
But investors seemed to know something: that output would eventually recover. And when it did, the bull run from 2016 onwards would likely continue.
When you think about it, this analysis makes a lot of sense. COVID-19 didn’t actually make any substantial changes to the economic assets. It wasn’t killing productive-age people. And it wasn’t destroying any of the physical capital required to keep the economy running. Plus, companies weren’t going to go out of business because of government loans. In a sense, the economy was just in limbo, waiting for governments to give the all-clear for regular output to resume.
As such, we’re seeing a tremendous bull run in equities that shows no sign of abating. Despite somewhat lackluster performance of the economy as a whole, companies are still earning money and posting profits. And that’s having knock-on effects on stock prices. Even during the pandemic, many firms still posted decent operating performance – even those forced to close their physical premises.
Equities, however, aren’t the only assets on a tear right now. So too are cryptocurrencies. BTC prices are shooting through the roof, thanks to increased retailer interest and the promise of riches down the road. And commodities are also seeing a spike, perhaps heralding inflation to come.
For commentators, all of this activity seems a little confusing. We should be heading into a difficult and prolonged recession, characterised by high levels of unemployment and deteriorating company finances. But that’s not what’s happening. The world is going in the opposite direction and bouncing back from the current setback tremendously.
What’s so surprising about these events is that there is no guarantee that another lockdown won’t happen in the future. Yes companies seem to believe that they can adapt to these circumstances, thanks primarily to the growth of digital commerce systems. It’s relatively trivial for firms to set up remote working and serve their customers via the internet.
In summary, therefore, the COVID-19 bull run is showing no signs of abating. Yes, inflation remains a risk. But that’s actually a good thing for stocks. Companies tend to receive money before the average person, allowing them to raise nominal profit forecasts, pushing share prices up today.
Getting into any market at its peak is always a nerve-wracking experience. But markets peak all the time because wealth is always rising.
