The buying opportunity draws closer as W merges with Nike swoosh

I reckon one big buying opportunity is close, but there will be misery first. The stock market will follow the economy as predictions of a W shaped economy morph into a Nike swoosh.

Article updated: 24 September 2020 12:00pm Author: Michael Baxter

Before I begin, let me declare my rationale. I have believed for months that the second wave of Covid will be worse than the first, and when the stock markets cotton on to this, they will panic.

And I am sorry. My rationale is miserable. No one likes to be proven wrong, but on this occasion I would love it if that was so.  A second wave of Covid was always an inevitability. When the much-maligned Neil Ferguson at Imperial produced his report looking at what might happen if there was no lockdown he considered a second wave.

Spanish flu of 1918 to 1920 came in three waves and the second claimed the most lives. 

I also think we were lucky with the timing of the first wave, coinciding as it did with an especially sunny spring. The combination of winter and Covid scares me — that’s genuine, I am really scared. If I am wrong, and Covid proves to be no worse than a regular flu season as so many expect, then I would say “phew.” But I think that is wishful thinking. When you look at the data, observe how exponential works, and really look at the data on Sweden (which saw many more deaths in April than usual) it is hard not to draw the conclusion that I have drawn.

The markets

The markets have never got this, as I have been saying for some time. I get why tech stocks surged, their strong performance was at least partially justified as Covid has seen an acceleration in the shift towards digital which will never reverse. But US markets — S&P 500 and NASDAQ — didn’t just hit an all-time high a few weeks ago because of techs, not the S&P 500 anyway. Non-techs did well. And I think they did well because too many of the ladies and gentlemen who determine the short term rises and falls in stock markets bought into the ‘covid-denial’ foolishness.

Time to buy and sell

They say that the time to buy is when all but the most bullish of investors have turned bearish, and the time to sell is when all but the most bearish of investors have turned bullish. But in the Covid-era, I would say the time to sell is when all but the most Covid-negative investors have softened their views, and the time to buy is when all but the most Covid-cynical investors have become Covid-believers.

As the Covid-penny finally drops, and the second wave hits the US just as it is now hitting Europe; that’s when the buying opportunity will emerge.

The economy 

As for the economy: we know it suffered a horrendous contraction in Q1 and Q2, while Q3 saw rapid growth. This was always likely; output had fallen so low that a recovery of some sorts from that low point was a near mathematical certainty.

This was predicted here back in early July.

So the story of Q1, Q2, and Q3, was of a three-quarters V. The downward curve happened and we were around halfway up the upwards curve.

The question is what next. Will it be like a W, a Nike Swoosh. Or something else. I reckon, the economy will contract again in Q4 as lockdowns of some sort return, creating the second downward slope in a W.

But the upward slope will be more like a Nike swoosh. 


Further out, I still think that the economy of 2022, with its more digital stance, and following the creative destruction of Covid, combined with government stimulus, could actually see something of a boom. We shall see.

The risk to that is a reversal in globalisation, compounded by Brexit and Trump’s policies if he wins a second term. I suspect that the combination of Brexit and Covid will be disastrous for the UK. But other parts of the world will boom, especially South East Asia. Mainland Europe which may draw closer together post-Covid will outperform the UK.

The K

Another possible economic situation can be described as a K, where some people do well others badly — meaning higher inequality leading to more social issues. This could be good for the markets short-run, but negative long-run as social unrest impacts the economy. 

I suppose, the scenario I described above with South East Asia and mainland Europe outperforming the UK would be another example of a K — but applied globally. 

Stock markets

Stock markets will, in my view, exaggerate the economic picture I tried to paint above. When Covid-reality sinks in, stocks will sink. Then the buying opportunity will emerge — especially with techs and companies that trade in South East Asia. 

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.

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