Disruption is back, and how. For the past few weeks there has been a tussle in financial markets between fears of worsening economic disruption, and hopes that central banks would keep the money taps open.
Overall, the hopes were beating back the fears, particularly in the US. When bad news came along, it was mostly swept aside, at least on the equity markets.
There have been differences from country to country of course. The widest measure of US company valuations, the S&P500 index, hit an all-time high this month and despite the wobble on Friday is still up nearly a quarter this year.
City slickers: Whenever you get a sudden downward lurch in share prices, there will be buyers on the dips
Outside of America there is more caution. UK shares, as gauged by the FTSE100, are up only 8 per cent this year.
That shows how unfashionable UK companies still are, but at least the number is up. The equivalent measure for German companies, the DAX index, is up by a bit more, 13 per cent, while the French CAC 40 index is up 22 per cent.
Then over the past fortnight the mood, particularly in Europe, shifted. The reason was the rising concerns of a new surge of Covid cases and deaths.
Now, quite suddenly, on top of these broader worries has come the news of the new variant, and that was what spooked the markets on Friday.
But whenever you get a sudden downward lurch in share prices, there will be buyers on the dips.
After all, the global economy is still in the early stages of a cyclical recovery, which on past experience could run for several years, and there is an awful lot of money swishing around the world looking for a home. What should we look for?
First, and most obviously, it is the extent to which the central banks keep those money taps open in the face of the burst of inflation worldwide.
All the signs are they will. Maybe the Bank of England will raise interest rates next month, but while it sounds harsh, it is really only a second division player as far as global markets are concerned.
The Federal Reserve and the European Central Bank hold the keys, and every indication they have given is that they will keep supplying the markets with what they want for a long while to come.
Whether they are right or wrong is irrelevant. I happen to think they are making a huge error, but that is what they are going to do.
If inflation sticks above 5 per cent next year, then maybe they will have to speed up the inevitable rise in interest rates.
But the tidal wave of money will continue to swish around the world for a while yet. Second, we need to think about investor sentiment. People aren’t fools. They have avoided the October meltdown that I feared might happen, which is encouraging.
But some of the most frothy assets have taken a tumble. For example, Bitcoin was down 20 per cent from its peak earlier this month – though still up more than 80 per cent on the year to date. What I think we will see is a mixture of tactical caution and strategic confidence. In the short term investors will want to pare back risky holdings.
But they will continue to build up their stock in solid, proven investments. So think high-tech America rather than crypto-currencies. But markets overall will be bumpy until it is clear that shutdowns are a thing of the past.
Third, let’s just be clear about the economic cycle. We know there is one, and all claims that it has ended have proved wrong. Remember how Gordon Brown boasted he had ended boom and bust? We know too that each cycle is different.
The UK is now probably back up to the size it was in January last year, though we will not know for sure for several months.
But there is no major economy that is back to where it would have been had the pandemic not struck. So there is a lot of ground still to be made up, and catch-up will drive growth for two to three years at least.
That will underpin asset values in the medium term. So see the wobble on the markets this week as something that is both inevitable and healthy.
There will be more shocks – but longer-term the land looks brighter.
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