This past week was a time for us to look back and take stock of what was and will be for most of us the craziest year of our lives. I want to summarily consider what has happened and then more importantly move on to what the future holds.
The question really is, where do we go from here, not only in terms of the economy and markets, but also society and politics, and perhaps most importantly, science and our mental well-being. To help answer those questions, Max Zahn and I asked a number of individuals in a position to know—from Francis Collins to Francis Fukuyama (with Abby Cohen and Deepak Chopra thrown in)—for their take.
So first a note or two about the past year. I’ve never fully appreciated the phrase "another trip around the sun" until this week. Thinking about what transpired last year reminds me of 9/11 as another demarcation. After we crossed the line, we lost a measure of innocence, naivety and hubris. This past Thursday, March 11, became the quasi-anniversary of the pandemic. On that day a year ago, the stock market crashed, the NBA canceled its season, Tom Hanks announced he had COVID-19 and more. (Some have taken to calling it “the day the music died,” though I’m not sure that serves the memory of Buddy Holly, Ritchie Valens and The Big Bopper.)
Last year this week, I traveled to Omaha to interview Warren Buffett and I remember being a bit nervous, (what if I have COVID and give it to Buffett?), but we went ahead. There was no testing at that point, nor any masks. I remember Buffett bounding into the room, shaking hands and sitting right next to me for the interview. (Yikes!)
I asked him about the Dow falling 2000 points the day before (because of COVID of course), and he said. “I told you many years ago, if you stick around long enough, you'll see everything in markets. And it may have taken me to 89 years of age to throw this one into the experience. We've got something that we don't know how long it will be with us. We don't know how severe it'll be. But there will be uncertainty about that for a considerable period of time. There has to be.”
At that point he also said, “I won't be selling airline stocks [today.]” A few weeks later, he did. Well, who could blame him? Turns out COVID was much worse than anyone thought. I had a similar experience with Dr. Francis Collins, head of NIH, whom I interviewed in February last year, who told me then: “At the present time there is no reason for considerable anxiety in America.” That didn’t age well of course.
I had a chance to speak with Collins again, this week and I asked him: Do you remember your thinking changing?
“I do. And it began to change shortly after that with the realization that this was a virus that was capable of infecting people who had no symptoms, and some of whom would never get symptoms. Others who might develop symptoms two or three days later. This was the worst case you could imagine for a virus that you would try to control with public health measures, because you couldn't really know who was spreading it without even being aware they had it. We hadn't expected that. That's not the way SARS or MERS behaved.”
Collins or Buffett not fully grasping back then isn’t the stuff of conspiracy or incompetence, it’s just that neither of them, nor any of us, had ever seen anything like COVID before, and once they analyzed new data they changed course.
Much of what happened over the past 12 months, especially in terms of the markets and the economy makes sense in retrospect and will look even clearer several years down the road. But since I’m in the "first rough draft of history" business, I’ll start now.
As investors started to realize just how devastating the pandemic would be, last March’s stock sell-off accelerated, with the market bottoming out on the 23rd, after having fallen 34% from its peak on February 19—a little over a month earlier. That’s a stunningly fast decline. The economy too went into a tailspin. By the end of April 20, millions of Americans were out of work and the unemployment rate soared to 14.7%, the highest since the Great Depression.
The stock market pain was short-lived however.
“The reason the bear market lasted such a short time was because of the unprecedented scope, scale, size, and speed of both what the Fed did and the government did with monetary and fiscal stimulus,” says Liz Ann Sonders, senior vice president and chief investment strategist at Charles Schwab.
At the same time, traders began to fixate on two data points. First that while the situation was dire, this was not a real life “I Am Legend” situation, in other words, not the end of humanity. And second, some sectors of the economy would fare better than others, and in fact would thrive during this time.
And so the stock market rebounded sharply, particularly stocks of those companies that would make out just fine during COVID—which created two divides. The first gap (or really an exacerbation of an existing gap), was between Wall Street and Main Street, as wealthy people who owned stocks actually got richer, while working people lost their jobs and became poorer. It is shocking that the S&P 500 climbed over 15% last year. During the worst pandemic in 100 years. Who would have ever predicted that.
But again, in retrospect it makes sense if you think about the second divide which took place within the stock market itself. Here too is a case of the haves and the have-nots. The aforementioned companies that did well, the so-called stay-at-home- trade stocks are what took the market higher. These flyboys were of course the FAANGs, (Facebook, Apple, Amazon, Netflix, and Google) and their ilk, each dominating a huge swath of the digital economy (e-commerce, hardware, social media, entertainment), which was humming on all cylinders last year.
And then there was a second group of smaller, even faster growing stay-at-homers like Zoom, Peloton and Etsy etc., which also went, to use a phrase of our time, to the moon. On the other hand. cyclical stocks like oil and gas, financials, manufacturing and hospitality stocks were left in the dust. But because the S&P 500 index is weighted by market value, the gains produced by the gigantic FAANG companies, (Apple was up an insane 81% last year) overshadowed the poor performance of lower valued, heavy industry (Boeing was down 33%.)
This bifurcated market started to changeover, imperceptibly at first, after the election. Starting at the beginning of this year though, a massive rotation out of FAANG and stay-at-home stocks took hold of the market. To wit: since the beginning of the year, Apple is actually down 9.5% (horrors), while the market is up 4.5%, meanwhile Boeing has soared (okay, I’ll stop) 23.7%. (And yes I know Boeing has had all kinds of other issues besides just being a cyclical company.)
In retrospect, this rotation makes perfect sense as the vaccine is being rolled out, faster than many anticipated, (especially now with the one shot Johnson & Johnson inoculation), and the economy begins to reopen. Investors are shifting their money out of only companies that could do well during the pandemic and into companies that will do well as the economy restarts. Rising interest rates—dormant for years—have also caught investors’ attention, adding to this changing-of-the-guard mindset.
That was the past 12 months. Let’s now turn to the future. I’ve organized this look-ahead into those three aforementioned, double-buckets: the economy and markets, society and politics, and science and mental well-being.
The economy and markets
“The economy will come roaring back,” opines Kristina Hooper, chief global market strategist at Invesco. “I think of this as a perfect storm, where you have pent up demand as well as elevated household savings for so many Americans. A year from now we’ll look back and say ‘Wow, that was a very powerful economic recovery.’ There will be businesses that were lost—there will certainly be economic damage—but the economic recovery will be breathtaking, one that’s a lot more robust and inclusive than what we saw following the global financial crisis."
“The global financial crisis [of 2008-2009] was largely about financial institutions faltering and being supported by the government and there was a lack of confidence,” Hooper says. “This is a different scenario. The economy was in good condition when the pandemic hit. The creator of confidence going forward is these vaccines being distributed. This will be a much faster recovery, and because there’s far more fiscal stimulus than the last time around. Less economic scarring, and the recovery will be more rapid.”
As for the stock market: “It means in the market we're going to see strong performance this year, although that rotation into cyclical and smaller caps will continue,” says Hooper. “I expect them the most economically sensitive areas of the stock market to outperform. “It doesn’t mean we’ll see tech and defensives necessarily experience losses this year,” but Hooper does expect FAANGs “to be laggards this year.”
Longstanding market watcher Abby Cohen, advisory director and senior investment strategist at Goldman Sachs, is a bit more cautious and is concerned about the inclusivity that Hooper mentions.
“I would say it is a very mixed picture,” Cohen says. “When we look at some of the headline numbers — including the rebound in GDP — that is looking obviously very promising. We have to recognize of course it’s coming from a very low base. It will take us a while to get back to where we were.
“The dark clouds, however, really are in the employment picture. It’s a very uneven recovery. I find this disturbing, quite frankly. One of the things the pandemic exacerbated was unevenness in the economy in terms of employment and in terms of income. Income inequality has been widening for 20 years, the pandemic certainly worsened it. Things need to get done to address these issues. I think a lot of work needs to be done in terms of re-skilling — take workers feeling a little scarred right now because of the unemployment situation, maybe some of their jobs aren’t coming back, and these people have to be re-skilled."
“One thing I believe that hasn’t gotten enough attention is the government sector,” continues Cohen. “We’ve lost something on the order of 900,000 jobs last year in the government sector including social services and health care. A lot of this is dominated by women and women of color and has been a path into the middle class."
Finally Cohen notes that “it will take some time before vaccine rollout globally is sufficient for us to have the international travel we’re accustomed to or international trade. A lot of supply chains globally are still disrupted.”
So it’s likely the economy will recover and the market may well remain strong this year, barring an inflation shock or some sort of other black swan event. But I want to go back to the question of FAANGs, tech and the stay-at-home stocks versus the cyclical stocks, because there’s a sorting out process there for many investors.
“What we have seen recently is really extreme shifts where leadership is concentrated,” says Sonders of Charles Schwab. “You’ve particularly seen so many of these flip-flop days, these mirror image days, where at opposing ends of the performance spectrum, you've got tech and financials or tech and consumer or communications services and financials and energy, and then the next day, they completely flip-flop.”
I look at it this way: Over the long haul, it’s unlikely that Amazon or Google’s growth story is over. But it could well be the case that over the shorter term, stocks of Delta and Bank of America may climb more than Zoom. But no one knows for sure. Bottom line: Things have changed and it will be interesting to follow, that’s for sure.
Society and politics
We know the world has changed in these spheres as well. Just for instance, Politico reported this week the CDC will soon acknowledge for the first time, there were more deaths than normal last year (right?) and the reason was COVID-19:
“The U.S. death rate increased by 15% last year as a result of the Covid-19 pandemic, making it the deadliest year in recorded U.S. history, the Centers of Disease Control and Prevention will announce, according to two senior administration officials with direct knowledge of the matter. Covid-19 was the third leading cause of death behind heart disease and cancer, the report found. 'Unintentional injuries' is normally the third-leading cause of death, officials said.”
These numbers clearly belie what I remember a callous billionaire hedge fund manager acquaintance of mine telling a friend last summer that "...all the people who die from COVID were going to die anyway." Not true.
Along with more deaths will be fewer births. A report from the Brookings Institution, estimates that perhaps half a million fewer babies will be born in the wake of the pandemic as people are loath to have children during times of economic uncertainty, the researchers report.
And yet, coming out of the worst pandemic in 100 years should mitigate those bummers in the birth and death department. “I think the mood is quite positive,” says Ian Bremmer, president and founder of Eurasia Group. “It’s positive in part because there are so much more effective both vaccines and treatment than we would have expected six months ago, even three months ago. On the economic side, Bremmer is in the Kristina Hooper camp saying, “ I’ve never experienced in my life the kind of economic trajectory we’ll have in the next six months.”
Bremmer notes however another one of those split haunts us. “We have an economy that feels robust and a political system that feels incredibly broken,” he says. “We’re the wealthiest country in the world, but we are increasingly dysfunctional and divided. The majority of people who voted for Trump think the election was stolen [by] Biden. And a lot of Democrats think political institutions are rigged and broken too. That’s a structural problem.”
A larger question is how the tug of war between nationalism and populism—the defining overlay of international politics for the past decade—will play out going forward. Nationalism has been on the ascent, but Bremmer notes “there is a reverse, at least a temporary reverse in Europe.” Maybe not so in the U.S.
I asked noted Stanford political scientist Francis Fukuyama, author of the “The End of History,” for his take on that point.
“We're in a pretty serious period of democratic decline,” Fukuyama told me. “But I don't believe that there's any inevitability, that what's been called this democratic recession is going to turn into a full scale depression. The Biden victory, I think, is a very positive sign because the United States is still the world's most powerful and influential country. It's a country in which the checks and balances ultimately worked.”
Fukuyama says “there are reasons to be both optimistic and pessimistic. Let's start with the pessimistic. The January 6 attack on Congress did not trigger a serious rethinking in the Republican Party. They increasingly feel that things are stacked against them. And the only way that they can protect themselves and their values is basically by keeping people from voting. It's an open question whether we're going to see more violence.”
As for the optimistic: “Everything I've seen indicates that we will be having most Americans vaccinated by late spring, meaning that the economy will really be able to open up in a serious way sometime over the summer. There's all this suppressed demand, plus $1.9 trillion in new spending. So it could be that by the end of 2021, people will have recovered their normal lives, and they will have jobs. And there'll be a lot of economic growth.”
According to Fukuyama, that could alter the traditional presidential first year narrative. “The typical pattern for newly elected presidents is a honeymoon period of maybe six months, that then deteriorates very rapidly, because they don't fulfill the promises they've made. But in this case, not entirely due to his own actions, but partly, to give him credit, that might not happen with this president.”
Is there hope for reducing polarization?
“If you want to understand how you can overcome, you know, the current polarization, economic success and health is probably a good starting point,” Fukuyama says.
Recovery and psyche are very much intertwined. Recently Wall Street Journal columnist Peggy Noonan wrote a piece “The Old New York Won’t Come Back." Cities, Noonan wrote, particularly New York City, will have a long tough road to recovery. JPMorgan Chase CEO Jamie Dimon came out a few days later and said essentially the same thing to Bloomberg. (“New York could have a little bit of a difficult time.”) I have all kinds of respect for both Noonan and Dimon and no doubt they’re right to a degree, but we may bounce back faster than they think.
Young people will want to be with other young people and not just on Zoom. After college they will want to go to a city, still, and New York is Alphaville. Much reconfiguring will need to occur. For a clue think of businesses where they pack you in like sardines; Broadway, baseball, airlines, and neo-sweatshop high-density, open offices.
Science and mental health
To start here, let’s see what NIH’s Dr. Collins learned from the pandemic.
“Science has rocketed forward even as we have suffered greatly as a nation,” he told me. “We learned how we can, in the face of a pandemic, do things scientifically in ways we have never really done before. Speeding up the process and building partnerships with industry that we've never really quite taken to this level. Coming up with ways that NIH could effectively serve as a venture capital organization for nurturing new technologies for instance in diagnostic testing. Made a lot of progress with vaccines coming forward at a timetable thought wasn't possible.”
I asked Collins about risks. “Vaccine hesitancy is a really serious one and while recent polls suggest this is reducing somewhat, we may still have 25% to 30% of Americans who say, ‘I'm not sure I want to do this.’ If that happens and we fail to reach this herd immunity, say 70% to 80% of Americans immunized, this could go on longer and give a lot more opportunity for nasty variants to emerge.” And let’s not forget, the virus is still with us. Within the past month, two people close to me tested positive.
The cloud is not yet lifted.
Nor has the emotional pain the pandemic inflicted upon us, which is immeasurable. The 532,000 deaths and the 29 million cases in the U.S., working from home and schooling from home, not seeing family and friends, all of it has taken a huge toll. “We're seeing higher levels of stress, more diagnosed anxiety disorders, diagnosed depression,” Dr. Lynn Bufka of the American Psychological Association told Yahoo Live’s Alexis Christoforous. “We're seeing a segment of the population that has had traumatic reactions to everything that's going on. So overall, an increase in mental health concerns across the board.”
Bufka notes that many Americans reported weight gain, "pandemic pounds,” while others weight loss. And of course more alcohol consumption. According to a Harris poll, nearly 1-in-4 adults reported drinking more alcohol to cope with their stress.
“Our well-being is not good,” Deepak Chopra told Yahoo Finance Live this week. “On a scale of 1 to 10, I'd say it's about two or three, which means we are suffering. We're suffering in the United States. We're also suffering in the world. Right now, every 12 seconds, somebody in the world commits suicide.”
So what can we do?
“One of the most important things is connectivity, and we've been under lockdown,” says Chopra. “But people are now finding ways to connect with each other online. The Chopra Foundation has created a nonprofit site, www.neveralone.love. We have an AI chatbot that can talk to people, find out if they're mentally challenged, help them. Interestingly enough, more people are comfortable talking to a machine than to a human. Tells you something about our humanity right now.
“I think it's time to democratize mental well-being globally through the internet and through blockchain and many other ways where we give each other attention, affection, appreciation, and acceptance,” Chopra says. “That's how we begin. We need emotional bonding. We need spiritual bonding. We need a shared vision. We need to complement each other's strengths. And we need to hold each other's back.”
Now again over to Dr Collins. When will we be back to normal?
“Define normal, Andy,” Collins says. “I don't think we'll ever go back to quite the way we were before this. Go to a ball game? Have my daughters and grandkids around and be able to hug them again? Which I really missed doing for the last year. I think we're going to get there by the summer. Is that middle summer, late summer? I don't quite know. It's going to happen gradually. Not like flipping a light switch. The CDC will keep putting forward ideas about how we can do this safely. Please, pay attention to those. This is not a time to stumble as we're approaching the finish line.”
Finally I asked Collins if we’re prepared for the next pandemic.
“We've learned a lot from this one and we must not go back into complacency when this gets over with. Because we've done that a few times in the past,” Collins says. “We sort of activated our pandemic preparedness and then let it slip a bit. This time after this worst pandemic in 103 years, I am very hopeful we won't make that mistake. We've got a lot of technologies like this messenger RNA approach to make vaccines we now know will work and can be done very quickly. And drug development. To get things into trials for treatment faster than ever and new technology approaches to diagnose quickly. Who's infected? Who isn't? We're much better prepared but I sure don't want to be smug about that. We need to be ready for whatever is lurking out there next, because there probably will be something.”
Last year, on Sunday March 22, 2020, my wife and I left Manhattan and drove to Maine to escape an impending and ill-defined lockdown. I began keeping a diary that night. (“Not much traffic on the road. Rest stops mostly empty. Arrived. Wi-Fi is bad and I am kind of in a tizzy about it. Have three laptops. Two lights. Two ethernet cables. Phones, chargers, cables and makeup.”)
I thought I might keep the diary for a year, which would be another nine days from now, but my wife has encouraged me to continue until I get vaccinated which should be another two months. After all, it’s the new normal now. So maybe I’ll just continue writing. Which might make sense someday, in retrospect.
This article was featured in a Saturday edition of the Morning Brief on March 13, 2021. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe
.Andy Serwer is editor-in-chief of Yahoo Finance. Follow him on Twitter: @serwer