Finding the Cracks

I have a lot of sympathy for pen-wielding strategists at the moment. Every day the empty white sheet of digital paper is staring at them, the little cursor tauntingly flickering in the top-left corner. The most obvious course of action, to copy-paste their previous note, is just about the only thing they can’t do. We economists at least have a steady flow of new data, however mundane and useless, to write about. In other words, the main questions remain the same, and they remain largely unanswered. Economic activity has collapsed, and is now staging what appears to be a painfully slow rebound. Even in the best of worlds, however, it’s difficult to escape the notion that significant damage has been wrought in on both the demand and supply-side. This puts equities on the spot. A reflexive rebound from the nadir in March was always coming, but could it be sustained, and would we re-test the lows? In a normal recession the answer to those questions would be “no” and “yes”, but there is nothing normal about this recession. U.S. equities have roared higher, and the ubiquitous growth stocks, which outperformed before, are leading the charge again. The S&P 500 growth index is up a cool 32% from its March lows, and is now flat year-to-date. By contrast, the S&P value index is up “just” 21% from the lows, and are still carrying a 20% loss year-to-date.

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