Stock Market: It Looks Like 2009 Again

(Drivebycuriosity) - It looks like 2009 again. The US stock market, represented by the S& 500, jumped more than 50% since the lows from March. The recovery encounters incomprehension and disbelief. Many observers don´t understand why stocks are rising when the economy is in a deep mess. Many commentators dismiss the rally as a bubble and Wall Street blowhards like Mohammed El-Erian, Jeremy Grantham & Stanley Druckenmiller call for a crash (markets ). 

 

 I experienced a very similar situation in 2009, when the 11 years bull market was born. In 2009 - and also in 2010 - the media and most pundits dismissed the rally and predicted a second dip. Many pundits announced the apparent return of the bear and even deeper lows.  I worked then for an online service in Germany commenting the stock market. My colleagues, the owner of the website and the majority of our readers were pessimistic and my positive comments got ridiculed and hated. Even early in 2010 the owner of the service forbid me to use the word bull market.

The skeptics then and now don`t understand that the stock market is always forward looking. The market does not care much about the current situation, it tries to anticipate the economy in the future. And in the long run the market always goes up, after every correction, crash & bear market follow new all-time highs.

I believe that the experience from 2009 will repeat and we may be in an early phase of another long running bull market. An economic boom could be right around the corner. The news about the research on Covid-19 treatments and vaccines are encouraging. The economic recovery should be fueled by a huge backlog demand. People are tired from sitting quarantined at home, they will be happy to go back to work and they want to visit shops, bars, restaurants again. There are also tailwinds from record low interest rates, cheap oil and trillions of government money.

My optimism is based on the observation that companies are getting more efficient & more productive over time - thanks to learning processes and the technological progress. They are learning organisms because they are managed by humans who are continuously improving themselves and their companies. There is a permanent evolution process which is driving the productivity (output per worker) and the winners are getting fitter and more efficient than before.

 

In the recent years the stock market gains got fueled by technological process. We have been experiencing a rapid advance of information technology, meaning combinations of computers, smartphones, Internet and other digital systems. It seems the Covid Pandemic is accelerating these changes. This reminds me of the Spanish Flu from 1918/19 which was followed by the Roaring Twenties and a legion of innovations. 

 

History shows that consumers and businesses are more willing to change behavior during setbacks (twitter). Innovations typically gain traction during tumultuous times: companies need to get cheaper, faster, more convenient, more productive, more creative. The Covid Pandemic changed many habits. The crisis forces many people to work, learn, shop, educate & entertain from home which is fostering digitization and raising efficiency & productivity of the economy ( driveby ). Online sales worldwide are surging, more people are working from home, they are binge watching Netflix & Amazon Prime, listening via Spotify, reading Kindle books, surfing Facebook & Twitter and businesses are running more & more on cloud computing. Not only consumers are changing, corporations adapt as well. There is an accelerated shift toward digital technologies that are faster, less expensive, more productive and raise creativity ( marketwatch). Post Covid-19 the new normal will be more digitized and more efficient & productive. I suppose that the accelerating digitization will spur economic growth in the coming years and fuel further stock market gains.