Two vaccines confirmed, more to follow, is the Covid crisis drawing to an end and is the great stock market buying opportunity here?
Is now a buying opportunity?
The optimum buying opportunity may have been and gone, but history shows that stock market recoveries are slow, drawn out affairs.
And as Warren Buffett often says, buying is about waiting for those rare occasions when conditions are right. He draws an analogy with a baseball batter — “If he waited for the pitch that was really in his sweet spot, he would bat .400...If he had to swing at something on the lower corner, he would probably bat .235."
He continued: “The trick in investing is just to sit there and watch pitch after pitch go by and wait for the one right in your sweet spot. And if people are yelling, 'Swing, you bum!,' ignore them.”
So, is that moment now?
Markets did better than I expected
I confess, I thought markets would fall further. I have long thought that markets were underestimating the seriousness of Covid — that there was a hint of Covid denial about stock market performance — but that things would turn when a vaccine is found.
Well, we now have two vaccines — I suspect there will be half a dozen by the end of the year.
Of course, logistics will be horrendous. Consider how hard governments found it to distribute PPE, and then testing kit and then organise contact tracing. Distribution of vaccines, some of which will have to be stored at around minus 70 degrees, will be an even tougher challenge.
But I am confident that by next spring, we will be defeating the virus. Simultaneously, news is also emerging about therapies.
Covid is not defeated, and this winter will be hard, but the defeat is nearing.
I think there is every reason to expect a very strong economic recovery, but maybe not until later next year. Covid has imposed a massive economic shock and it will take time to recover from that.
But two factors will drive the recovery and turn it into something exceptional. I expect output to pass pre-crisis level at some point next year. But in three to four years from now, I expect output to be much higher than would have been the case without Covid.
There are two factors behind this optimism.
The first is technology — Covid has seen an acceleration towards digital. This will lead to rapid growth in productivity.
The second is government stimulus. Governments will probably borrow at zero per cent and continue with massive stimulus.
The combination of the above will in my view create an economic boom. Stock markets will reflect this.
The risks are that governments will slam on the brakes too soon and impose austerity. I also worry about a reversal in globalisation. I am especially concerned about the UK in the Brexit era.
Even so, I think now is one of those rare moments when we sit before a period of opportunity.
To see it in Buffett terms, the right pitch is coming, the batter should prepare.
These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.