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“Markets can remain irrational longer than you can remain solvent.”  - John Maynard Keynes

COVID-19 Infections and deaths are again on the rise. In the United States, for example, daily cases have increased over the month of July from about 40,000 cases per day to nearly 70,000 cases per day.  Daily deaths have seen similar increases over the month of July, rising from about 500 per day to around 1,000 per day.

The United States is not alone.  While it may be the global leader in terms of sheer volume of cases and deaths, we are also seeing rising rates internationally as well. Investors are right to ask whether or not these increasing case and death rates are likely to lead to significant stock market corrections.

When asking such questions, it’s always important to keep in mind the wisdom of Keynes as quoted above.  Much like people, stock markets regularly over-react to news and events.  In attempting to forecast future stock market directions we’re not only challenged to forecast  underlying economic realities, but how investors will react to those realities when it comes to their willingness to buy and sell stocks.

That’s no easy task, but the difficulty shouldn’t discourage us from forging ahead.  So let’s take a look at some of the major trends unfolding in this “new normal” that we’re all feeling our way through in 2020.

First there is the reality of COVID-19 itself.  Yes, cases and deaths are on the rise, but they are on the rise precisely because economies are opening up and people are venturing out to test the waters and see what’s possible in terms of viable economic activities.  There is a grand global experiment unfolding as we speak.  Communities, states, countries and cultures are all trying different approaches to living with COVID-19.

I, for one, am optimistic, that we are gradually figuring it out.  People simply do not want to live their lives indoors and isolated from one another.  Yes, things will at times be messy, but this confusion is actually part of the learning process.  It’s a fool’s bet to underestimate the ability of communities of people at all levels to learn and adapt.  Every day that we live with COVID-19 we learn something new and we apply it to tomorrow.  That trend will continue.

Second, there’s the unprecedented liquidity being injected by federal governments and central banks to the tune of literally trillions of US dollars.  It’s been astonishing to see the rapidity with which this liquidity-injection has been approved.  It was just over a decade ago that we collectively agonized over a trillion dollars of stimulus during the 2008 financial crisis.  Meanwhile, four to five trillion dollars have been collectively authorized by central governments and banks with seemingly little debate.  

There’s no reason to believe that this trend is likely to abate in 2020 either.  The pending presidential election in the United States assures us that any nagging voices of fiscal conservatism will be drowned out by the need to win the approval of voters at the polls come November.  Fiscal conservatives are left fighting a rear-guard battle pleading to only spend three or four trillion dollars instead of seven or eight.  Yes, this is just the United States we are talking about but when it comes to global markets, the United States is still the tail that wags the dog.

While COVID-learning-rates and unprecedented-liquidity-injections are the two major trends that all investors need to be paying attention to, there are other trends emerging within these major trends.

Global consulting powerhouse McKinsey recently identified six major trend changes in consumer behavior that will have significant implications for all of our futures.  They are:

- Rapid digital adoption: People don’t want to touch things like physical money anymore.  Everyone, even the seniors, are finally and irreversibly going digital.

- E-service platform expansion: Online shopping, digital banking and tele-medicine are all on the rise.  Consumers have been forced to try more e-service platforms for the sake of social distancing and have actually found that they like them.

- Working from home: Why bother commuting to and from the office?  Sure, there will be adjustments to be made but again, people have gotten a taste of working from home and they like it.

- Staying local: One of the ironies of being forced to stay closer to home has been that people have increasingly realized that their neighbours aren’t all that bad and in fact, in the end, we kind of depend on each other.

- Personal health and well-being: It turns out the best way to fight COVID-19 is actually to be healthy.  Continue to look for increasing trends in personal health and wellness.

- Socially conscious values: There’s something about facing the possibility of mass mortality that makes everyone ask what makes life worth living. Happily, the answers to such questions are relatively universal – taking care of each other and having hope for our futures and our children’s futures.

Summing up then, we will continue to adapt and learn to live with COVID-19.  Central governments and banks will continue to do whatever it takes to keep economies afloat while we figure it out. Yes, there will be a future reckoning from such massive monetary expansion, but it won’t be in 2020.  Finally, digital adoption, personal health, local communities and enduring values are all likely to get a boost as we come to grips with how to better ensure that something like this doesn’t happen again any time soon.

What does this all mean for stock markets?  There will likely be continued upside surprises as we figure out how to beat COVID-19 and there will be buyers to come in and buy the inevitable dips while liquidity remains abundant.  Technology and biotechnology will continue to thrive as will brands and businesses that are best able to articulate not just their value-propositions but their values-propositions.

And, as Keynes’ immortal words remind us, there will be over-reactions – both to the downside and the upside.  The more things change, the more things stay the same.  

Richard Smith, who holds a PhD in Systems Science, is the Chairman of the Board and CEO of Foundation for the Study of Cycles, an international nonprofit that promotes and conducts research of cycles and how they can be used to make the world a better place.