Editor's letter

We could be heading for another Roaring Twenties

There are still plenty of risks ahead, but if we get a vaccine by spring we could see a better-than-expected recovery as we reclaim the bits of our old lives we loved, and dump the bits we didn't.

If you watched our interview with Jim Mellon last week (see moneyweek.com/videos) – or read the summary in the magazine – and then went out to act on the specific advice he gave on Friday afternoon, I suspect you have had a pretty good week. Jim told us that a vaccine was closer than most people thought; that we should remember that the pandemic that broke out at the end of World War I was fast followed by the Roaring Twenties; and that we should hoover up the kind of companies that would provide the goods and services people would really want post pandemic. He was, he said, buying IAG (parent of British Airways); Marston’s; and (as a play on cheap UK) Lloyds. On Monday, we learnt an effective vaccine really is on the way. IAG rose 25%, Marston’s 23% and Lloyds 10%. Nice. 

At the same time the stocks geared to working from home and lockdown in general mostly fell: Zoom was down 17% (albeit in the context of a 500% rise this year alone) and Peloton (producer of high tech indoor bikes some of you will know more about than I ever want to) fell 25%. There are vaccine naysayers aplenty out there. Both Boris Johnson and Nicola Sturgeon have been quick to say that the news doesn’t necessarily provide a fast route to the return of our freedom (and by extension the extreme powers they have given themselves over our lifestyles). But it certainly should: if anything, as we observe in our Briefing this week, too many people are spending too much time worrying about logistics and too little noting the extraordinary scientific achievement this represents (and suggests is possible in the future). 

If it is rolled out from December and the vulnerable (the old and the unwell) are vaccinated in a matter of months there is no obvious reason for any restrictions to remain at all by the early spring at the latest – given that the mortality rate for anyone outside the vulnerable groups is absolutely minute (the US CDC puts it at 0.5% for 50- to 69-year-olds). For consumers, businesses and stockmarkets that is an absolute game changer. Why? Because it means that instead of discounting an endless virus and politically driven stop-start future, we can start to imagine a straight-line recovery. You could then expect a huge surge in demand for consumer services from populations that are cash rich (most people have saved money during the pandemic); fed up; and ready to spend. Add in the operational changes and productivity gains (cost cutting and digitalisation) forced by the pandemic (or in some cases given cover by the pandemic) and you should see some fairly stunning earnings momentum start to get going. Time perhaps to load up on the cheap UK stocks geared to a rather-better-than-expected cyclical recovery (and don’t forget that as things stand we are near the front of the vaccine queue). 

There are nasty risks of course (the debt overhang and rising unemployment being the obvious ones). But there is a reason the market has performed as it has this week: if things go even reasonably well from here we will soon be able to reclaim the bits we liked of our old normal (pubs, planes and parties) while reserving the right to dump some of bits we never really liked (commuting every single day and not having the faintest idea who our neighbours are). Roaring Twenties? Maybe.

Recommended

Stockmarkets have a spring in their step
Stockmarkets

Stockmarkets have a spring in their step

Global stockmarkets have been basking in the post-Covid economic recovery as GDP, retail sales and manufacturing are all on the way back up.
23 Apr 2021
Stockmarkets shrug off turbulence
Stockmarkets

Stockmarkets shrug off turbulence

Stockmarkets have hit their first bout of turbulence of the year, but most are clinging onto January’s gains.
4 Feb 2021
US stocks look expensive – here’s what to own instead
Investment strategy

US stocks look expensive – here’s what to own instead

Right now, US stocks are among the most expensive in the world. So if you want a decent return on your investments, you should look into diversifying …
17 May 2021
Cinema stocks: a happy ending at the box office
Share tips

Cinema stocks: a happy ending at the box office

Cinemas have been battered by lockdowns and the surge in streaming options. But don’t write them off, says Tim Dams
17 May 2021

Most Popular

How will Joe Biden’s capital gains tax rise affect crypto prices?
Bitcoin & crypto

How will Joe Biden’s capital gains tax rise affect crypto prices?

The US president wants to increase capital gains tax – and that’s going to hit a lot of American cryptocurrency speculators. Saloni Sardana looks at h…
14 May 2021
US stocks look expensive – here’s what to own instead
Investment strategy

US stocks look expensive – here’s what to own instead

Right now, US stocks are among the most expensive in the world. So if you want a decent return on your investments, you should look into diversifying …
17 May 2021
Inheritance tax planning: the rules around gifting
Inheritance tax

Inheritance tax planning: the rules around gifting

There are plenty of legal ways to minimise an inheritance tax bill. Perhaps the simplest is to give away assets to reduce the size of your estate. Dav…
11 May 2021