Afternoon gains on US equity benchmarks belied a distressing hodgepodge of headlines strewn across the financial pages on Tuesday.
“Empty grocery shelves return,” said one. “Omicron is life threatening for people with underlying conditions,” another read. “Flights at US airports halted during North Korea missile test,” still another announced.
The world, it would appear, is in dire straits. And according to Johns Hopkins data, the US logged a breathtaking 1.5 million new COVID cases in a single day Monday (figure below).
Deaths are still subdued relative to previous waves (and certainly relative to case counts), but according to the Department of Health and Human Services, hospitalizations in the US hit a record high this week.
Some 146,000 people were hospitalized with COVID as of Tuesday, around 3,000 more than the previous peak hit during last year’s winter wave. It’s likely that a sizable number of reported hospitalizations are patients hospitalized for something else who then tested positive once admitted. Nevertheless, the numbers are daunting.
Seemingly every piece of news is bad news. I’ve ventured back into the Twittersphere this year. I have my reasons. On Monday, “urine” was trending under the headline “politics.” That seemed somehow appropriate.
I do wonder, though, if shrill lamentations for our seemingly dour plight are misplaced to the extent they suggest challenging circumstances are somehow the exception rather than the rule. The 80s, 90s and, to a lesser extent, the 2000s, lured countless citizens in advanced economies into a false sense of security. Historically speaking, humanity’s default condition isn’t peace and prosperity. On the contrary, it’s been a long, arduous, violent, volatile journey for our species, with sporadic, albeit sometimes long-lasting, periods of relative tranquility. The era of hyper-globalization and Pax Americana was one of those tranquil periods. It’s now coming to an end, but as bad as things seem, they’ve been far worse, notwithstanding our existential climatic reckoning.
Indeed, it’s easy to forget that America itself is a very young nation. And it was founded first in conquest and then in violent revolution. Recent events, domestic and global, are a kind of mean reversion to a more traditional arc characterized by progress (sometimes halting and incremental, sometimes achieved in giant strides), punctuated by all manner of chaos.
The good news for humanity is that we’ve made it this far. We survived previous plagues without the benefit of modern medicine. And we’ve pulled ourselves back from the brink of annihilation on too many occasions to count. Last week’s joint statement from the five nuclear nations was a testament to the idea that even in the worst of times, we’re not inclined to actively pursue overnight extinction, even as we passively countenance a slow-motion ecological apocalypse.
Seen in context, things aren’t all that bad. Or, if they are, it’s nothing new.
At the same time, context is important when it comes to assessing the outlook for risk assets, and particularly equities. Yes, the prospect of tighter Fed policy and higher real rates would appear to represent an existential threat to stocks trading on dot-com multiples, but consider that, as JPMorgan wrote this week, the policy-macro conjuncture isn’t as challenging as it was in 2018, when the Fed last embarked on a double-barreled tightening crusade.
“2018 was a late-cycle backdrop defined by the US-China trade war which was driving a near-recession in global manufacturing and global growth while real yields were rising from 0.5% to more than 1%,” the bank wrote. By comparison, this year real yields are rising from “extremely complacent levels” and are only likely to reach -0.25%, the same note went on to say, adding that although real yields “will likely gradually revert to positive territory in the coming years,” that’s a long adjustment period. If risk assets can’t handle a slow rise in real yields from record negative levels to barely positive territory over the course of two years, then we really are far afield.
“In 2022, we expect real yields to remain far from levels that can start challenging the expansion [while] at the same time, the economy will be defined by a full global recovery and an end of the global pandemic which we believe will produce a strong cyclical recovery, a return of global mobility and a release of pent-up demand from consumers and corporates,” JPMorgan’s strategists went on to say.
Again, it’s really not that bad out there. Or, if it is, that’s nothing new.