Will the rush toward normalcy prevent us from learning the lessons this trauma has offered?
Anyone else finds it absurdly ironic that major market averages are hitting all-time new highs precisely one year after the WHO formally declared COVID-19 a pandemic? Scrolling back to last year, few of us anticipated that 12 months hence we would still be relegated to home workspaces — and that schools, entertainment venues, gyms, restaurants, and a host of other activities would still be in various states of restriction.
In March of 2020, markets that had peaked a few weeks earlier (2/19/20), moved sharply lower and quickly entered bear market territory. If you’d stated at the time that market slippage was temporary and that key indexes would be 38% (DJIA), 44% (S&P 500), or 68% (NASDAQ) higher after 365 days…friends and family would probably have accused you of mood alternating substance use. It is worth noting that the trajectory of the market and the trajectory of the disease itself (as illustrated in the Statista graphic below) did not move the slightest in tandem.
But as is often said, markets exist to confound the consensus. So as we notch one year, what have we learned? What lessons can we take as investors, employers, employees, citizens, and humans? More importantly, will we have the grit to identify and address the systemic inequities exposed in the wake of the Pandemic? The jury is decidedly out on that front as human nature leans toward wanting as rapid a return to “normal” as possible. What follows is not even close to an all-inclusive list. Rather, it is a way to start the conversation and hopefully provide a venue for continued debate, discussion, and hopefully progress moving forward. In my humble opinion, each of us needs to hold ourselves, our elected and selected leaders, and each other accountable for enacting much-needed change. Do you agree? Disagree? Drop your thoughts in the comments and let’s keep this conversation going!
What we learned about work and living arrangements:
- Employers learned workers could not only work from home for extended time periods — but were incredibly productive. Cost savings mounted and whole or part WFH (work from home) and work from anywhere arrangements are likely to become standard fare. Expect tons of new and creative alternatives around pay, travel/relo stipends, etc. Peter Drucker wrote back in the 1980s that the advent of knowledge work would cause companies to move work to where the people were, rather than people to where the work is. It took a pandemic to make it happen.
- Fewer ties to big cities may well have impacts on the transportation and utility grids — putting downward pressure on big cities and upward pressure on rural and small- mid-sized locales. Infrastructure needs to be rethought and rebuilt. Which bleeds over into the need to ensure fair, cost-efficient, and equal access to high-speed internet for all.
- Employees, on the other hand, learned working from home wasn’t all it’s cracked up to be and cant wait to get back to the office. But many companies are busily running the models and determining having everyone back in the office isn’t necessarily cost-efficient. Expect rationalization of real estate values until “clearing prices” (lower in big cities, higher in small/rural areas) find new norms.
- Despite dual career and multi-gen households, we learned that child and elder care typically falls disproportionately on one family member — often the female. Millions of women have dropped out of the workforce and done irreparable damage to current and future earnings potential. When do we as a nation decide that raising our young — and adequately preparing and compensating childcare workers, teachers, and other front-line workers is the responsibility of all of us, whether or not we have young ourselves? These future citizens and workers are our retirement plans and/or the ones that will be helping us as we age out of the workforce. Best take care of them.
- It remains to be seen if our youth are irreparably harmed, or if they will catch up when more normalized in-person learning arrives. The projected massive decline in birth rates (which some estimates put at a deficit of 300,000–400,000 births in the next year or two) could pressure an already tough mix of older versus younger workers and retirement finances.
- It remains to be seen if graduates — both high school and college — will be forever disadvantaged by the convoluted jobs market many of them emerged into. Studies, for example, have found that those who graduated college during the worst years of the GFC are far behind other cohorts’ earnings and net worth progress at similar ages.
- Education and training, especially for post-secondary, need to be rethought. As AI, VR, and a host of new technologies gain in prominence, new careers emerge while the death throes of others accelerate. Time to reboot and retool not only the jobs but the funding and educational systems that provide appropriately skilled workers for a post-pandemic 21st Century world.
- Shifts in key industries — online shopping, food delivery, telemedicine, virtual conferences, etc. — have compressed years of potential growth into weeks and months. While some of this may normalize as we venture back to the office, the gym, and the store, some portion will likely remain rooted in newly adopted methods. This pressures providers to support multi-channel touchpoints and interaction (which can, in turn, put upward pressure on margins to deploy).
What We Learned About the Economy
- From a government intervention standpoint, the Great Financial Crisis (GFC) and the Covid-19 pandemic couldn’t be any further apart. While the US Federal Reserve moved quickly in both instances to lower rates rapidly, fiscal stimulus was non-existent for months (if not years) in the GFC. The major lesson deployed this time was that rapid intervention was critical in preventing even further economic trauma.
- The US economy in particular is amazingly resilient. Companies pivoted harder and faster than any time in recent memory — drawing cash lines, suspending guidance, shifting business models to suspend/accelerate activities as consumers demanded, and furloughing (versus firing) workers. These moves, aided in select pockets by pandemic aid programs help stave off an even steeper and/or more lasting contraction.
- That said, it is worth remembering we did have the sharpest recession on record. A key difference is that we all knew when it started, and the combination of government aid and business quick-footing helped the recovery start off more robustly than any recovery in multiple decades.
- As another nearly $2 trillion aid package works its way quickly into the system, it is an open question for many whether it’s truly needed in the size that emerged — or if there is enough recovery already in the system. Some fear this is like applying shock paddles to an already revived patient, fretting it will ignite inflation. Further concern surrounds comments from Treasury Secretary Yellen and Fed Chair Powell that a little inflation is a good thing, and they’ll err in letting it run hot. Few under 50 remember what inflationary environments look like — and even fewer managements remember how to operate in them. (more on this topic in a future article!). Bottom line — whether you agree or not, there is substantial additional stimulus headed into the system that should prove supportive of growth. It’s important to remember that both the stock market and the economy had a recessionary reset, even if it was one of the shortest in history.
What We Learned About Investing
- Markets are forward-looking. They don’t like unexpected events such as the emerging pandemic a year ago — but they respond quickly, reset, and work hard to outline future progress. In the case of the pandemic, while business activity ground to a halt, we were all in the same boat. It was also pretty clear that human nature would eventually take over and folks only stay cloistered and scared for so long. Many celebrations large and routine were deferred, displaced, or recast — not canceled. Markets and investors quickly figured out where the spending and activity were and invested accordingly. Focusing on the course of the disease and vaccine development as well as truly absorbing how fast companies pivoted teed up long term investors to be able to stay put, rebalance at the margins, and operate resiliently.
- “Don’t fight the Fed.” When the Fed chairman notes essentially that they will “do what it takes” and more importantly that they have many tools to help them — investors are wise to truly take those comments to heart.
- Market participation has become increasingly democratized with the advent of stock market apps and free trading. This is good. However
- Access to information and an ability to trade does not necessarily imply wisdom. Just because you can Google how to do an appendectomy doesn’t mean you should attempt one. Buying an asset because 1) it’s going up or 2) because you want to “stick it to Wall Street’s old guard” isn’t typically regarded as a viable long-term wealth-building strategy. There is ample room for new or old providers to fill this education gap and bring sound long-term investment understanding to the masses.
Call to action
As the histories are written of all of the events of the past year, I am sure many more issues will be raised, debated, and discussed. At least that is my sincerest hope, as there are many inequities that truly need to be addressed. The risk is that we collectively are so exhausted and “over” the experience that we RUN toward any semblance of normalcy that can be created as the global population becomes inoculated and herd immunity broached. Lest we lose this opportunity, though, let’s remember the inequities exposed, particularly in those early days, and do something about it. Let’s get involved and challenging the status quo in our cities, towns, neighborhoods, families, companies, states, and country. Starting with:
- Infrastructure — no really! Let’s finally address the aging roads, bridges, grids, water pipes, etc. A modern-day TVA anyone? And now we have the opportunity to think about it in a much more distributed way versus just congregating in big cities. Then, too, let’s think through environmental impacts and why we continue to rebuild in flood / fire-prone areas, particularly on the coasts, versus more evenly distributing populations.
- Let’s not rush too hard to create dependency of the citizenry (voters) on Washington / Government. In my humble opinion, it’s government’s responsibility to create an amenable environment for all to pursue happiness. It’s not the government’s job to guarantee happiness itself. Personal responsibility plays a key role, but there are tons of inequities in that equal access, that need to be ironed out NOW.
- Let’s address the educational and childcare system — as well as the inequities in pay for front-line/essential workers versus thought leaders.
If you’ve gotten this far — kudos to you. Please let me know your thoughts!
Carol Clark Schleif
Carol Schleif is an accomplished executive and a pioneer in both buy- and sell-side investing. She has been a leader in…
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