John Authers has an interesting observation this morning:
For years, a global influenza epidemic was at or near the top of the list of geopolitical risks that scared markets. That epidemic is here, with each day bringing news that the risk of a pandemic has intensified. How has the market brushed it off?
The S&P 500 is up 33 per cent since its March nadir. April is on course to be the best month for US stocks since 1987. More to the point, the flu has barely dented stocks in Mexico, which plainly stands at risk of severe economic damage from a disease that has been linked to the deaths of almost 200 of its citizens. In dollar terms, Mexican stocks are down 4.5 per cent since the outbreak was confirmed, having risen 57 per cent in the preceding six weeks – a tiny impact on a market primed for a correction.
If markets can survive news like this, optimism must be well entrenched.
But is it warranted? Albert Edwards, a bearish strategist at SocGen, notes elsewhere in today’s FT that,
The current pop in the market is not dissimilar to the many bear market rallies between 1929-1933 where signs of economic stabilisation were met with strong 25 per cent rallies … This optimism was subsequently crushed.
Meanwhile, Alain de Botton is also warning against optimism today, albeit from a somewhat more philosophical perspective:
It is time to recognise how odd and counter-productive is the optimism on which we have grown up. For the last 200 years, despite occasional shocks, the western world has been dominated by a belief in progress, based on its extraordinary scientific and entrepreneurial achievements. On a broader perspective, this optimism is a grave anomaly. Humans have spent most of recorded history drawing a curious comfort from expecting the worst. In the west, lessons in pessimism have derived from two sources: Roman Stoic philosophy and Christianity. It may be time to revisit some of these teachings, not to add to our misery but precisely so as to alleviate our sorrow.
Jules has been arguing the same thing for a while, too – his interview on Stoicism with Martha Nussbaum a couple of months back is especially recommended (find it on Jules’s blog here).