Covid denial will create another stock market crash and then opportunity

Covid deniers or even Covid belittlers are mistaken; their mistake may cost lives and may lead to a stock market crash; investors: strap yourself in because opportunity awaits.

Article updated: 15 September 2020 2:00pm Author: Michael Baxter

Covid denial is rife, even those who accept the existence of the virus and even agreed with the previous lockdown are now downplaying its seriousness. “Why can’t we be more like Sweden?” they ask. It’s like a virus in itself; coronavirus dismissal is contagious. The markets were infected several months ago.  It’s creating danger, but it will create opportunity.

Before anyone accuses me of being callous, talking about the opportunity from a deadly virus, let me point out that I am personally worried. I think myself and my family were lucky during the first wave of Covid. I am a tad scared I won’t be so lucky this time. I am not suggesting investors can make money out of others misfortune; I am suggesting they can make money out of our misfortune, including maybe mine. I hope that tackles the accusation of callousness. But, as a one time, Lord Rothschild said. “The time to buy is when there is blood on the streets, even if some of the blood is your own.”


Part of the problem lies with a misunderstanding of exponential. Covid infections are rising exponentially again in the UK. I hear infections are doubling between one week and ten days. Assuming the ratio of fatalities to infections stays constant, that means deaths from Covid will double every week to ten days. As I write, the latest data says there were nine deaths in the UK from Covid in the previous 24 hours. If they double every week, that means in ten weeks, in mid-November, there will be 8,000 deaths a day. With exponential, numbers start small, remain relatively small for a while, then the increase becomes either spectacular or terrifying, depending on what it is that is growing exponentially. 

It was because markets didn’t grasp the significance of exponential that they undervalued certain techs, why investors who did get exponential could have made a fortune by investing in a handful of techs.

Failure to grasp exponential growth of Covid is why its impact was underestimated earlier this year. I am not being wise in hindsight; I said something similar at the beginning of February. 

There is another point: time lags. There are time-lags between Covid infections rising and deaths rising — earlier in the summer when I watched with horror the rapid increase in the US, I noticed there were at least six weeks between infections rising and fatalities rising.

Sweden analogy doesn’t work

Those who say Sweden has done okay need to do more research. Sweden is not Britain. The Swedes are more trusting of authority than Brits. I suspect that culturally Sweden is less libertarian. It certainly has less inequality and lower obesity rates. In fact, per capita Sweden was one of the worst affected countries in the world, the UK was one of only a few that did even worse. I believe the UK did incredibly severely because it was a week late introducing lockdown, because culturally a lot of Brits don’t like being told what to do, because the UK has relatively high inequality, because of a considerable level of obesity and because of a dense population.

If you compare Sweden with Denmark and Norway, things look different. The death rate per million in Sweden has been 577. This puts it in the top 10 for fatality rates in the world. Sweden has twice the infection rate per million as Denmark, and five times the fatality rate. It has four times the infection rate as Norway and ten times the fatality rate. Yet the latest data on GDP from Eurostat shows that while Sweden contracted by 8.3 per cent in Q2, much less than most countries, Denmark contracted by 6.9 per cent and Norway by 5.1 per cent. It’s not lockdowns that caused economic contraction; it was Covid.


There is one other factor. I believe there is also a link between the Covid fatality rate and weather. Back in the early days of lockdown, I had a feeling deaths would fall as the outside temperatures began to rise. What will happen as winter gets closer, central heating gets turned on, the cold and flu season begins?  No one knows for sure, but the possibility that the Covid death rate will rise is not remote. 

When will we know

Frankly, we will know if my concerns are right within two or three months. 

My view is that normality will only begin to be restored once there is a vaccine available worldwide, and this won’t happen until 2021, hopefully very early on in 2021. 

Disconnect with stock market 

Everyone knows that the economy has taken a massive hit, thanks to Covid. In recent weeks it has seen rapid recovery, but that always was a mathematical probability. Output had fallen so low that some growth was inevitable. But I think it will take many moons before output rises to the pre-Covid level.

Looking further forward, one of two things might happen. The creative destruction created by Covid may create an environment which is more welcoming of new technologies, and the economy will grow at a level that would not have happened otherwise. Or, the world will react to the issues created by Covid by becoming more risk-averse, and may also draw in on itself. If some countries start breaking international agreements, this will exacerbate the challenge.

The stock markets have been hopeless at pricing in the likely impact of Covid. Okay, the surge in tech stocks has been behind the extraordinary performance of the S&P 500 and NASDAQ. Given that Covid has seen an acceleration towards digital, this tech boom is partially justified. There has been a partial tech correction — Apple’s valuation is back to a mere two trillion dollars. And the tech market is very vulnerable to more corrections, but I believe long-run it is in good shape.

As for the wider stock market, I don’t believe it has fallen anywhere near far enough. I think it is being propped up by the same Covid denial and Covid belittling I referred to above. That’s why I think that when reality catches up with the market, we will see either a stock market crash or at the minimum, sharp falls. In the aftermath of this, investors will have their best opportunity since 2009 to do some buying.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

See what else we have to say