After the Crisis, the Work Begins

With the equity risk premium now mean-reverted from 2009-type panic levels, further gains in stocks will be driven by actually experiencing the V-shaped economic recovery we expect. The easy money is out. As the economy reopens, it will first be fueled by early adopters – mostly the young – who set the example for those to follow as fear quickly evaporates. It doesn’t have to happen all at once. Typical V-shaped recoveries take 2 to 3 quarters. Relaxation of social distancing won’t trigger a second wave of the virus because, unintuitively, there is no evidence that lockdowns had any effect in the first place. A resurgence in the winter will likely not draw the same political response. Changes in consumption and work patterns will trigger creative destruction that will drive growth. Globalization will continue to be optimized, but backlash against China will lead to reforms that will make it a more attractive economic partner.