This past Monday, the Dow Jones Industrial average declined 725 points, or a little more than two percent. If we are to believe the news reports, the selloff was prompted by an increase in Covid cases. I don’t know if I am more disappointed by the investors who sold or the so-called media experts who fed the frenzy.
Headlines explained “Virus fears ripple through markets,” “Delta variant will likely create sloppy stock market,” “Covid angst spooks investors” and “Sell-off intensifies amid pandemic fears.” A Wall Street Journal headline screamed, “Stocks tumble as Delta variant sends investors to bonds.” Are zero-point-nothing percent bonds magically immune from Covid? Or just from the Delta variant?
In my opinion, it’s silly to base your investment decisions on the Covid case count, or whether the virus jumped into humans from a bat cave, the Chinese military or an all-you-can eat Wuhan buffet. If nothing else, surely, we’ve learned that from 19 or 20 months of pandemic.
In case you forgot, last year we shut down massive segments of the entire world’s economy for months, causing the largest three-month contraction of economic activity in the history of mankind. However, once we removed the self-imposed roadblock, our economic engine began to operate at closer to full capacity again. It hasn’t been a smooth restart – and there have been sectors that have been forever damaged – but we learned that if the world doesn’t end, things will continue.
The definition of “workplace” changed for a lot of people, but 131 million Americans never missed a paycheck last year.
There are only two possible broad economic outcomes with respect to Covid: either we will figure out a way to live and work in some reasonable fashion, or the vast majority of us will get the disease and die. We can debate around the margins, but reality is going to be very close to one of those extremes. If the Covid end game is Armageddon, then your 401(k) return this year doesn’t matter very much.
I suspect most of the panicked sellers this week think there is some middle ground. That is, they don’t believe the world is about to end, but they think they can outguess the other guessers about when fears about Armageddon will ebb and flow. That’s a bit like watching a horse race and instead of picking the horse you think will win, you try to predict the changes in who the other bettors think will win. For more than a year I’ve watched really smart people try to predict Wall Street reaction to the future vacillations in Covid fears and I haven’t seen anyone profitably get it right yet.
David Moon is president of Moon Capital Management. A version of this piece originally appeared in the USA TODAY NETWORK.