Whichever way I look at what’s going on right now with stock markets, I end up looking at tech investment.
I admit, until a few days ago I was puzzled. Why had stocks performed so well since the March crash? Back in February, I felt that the markets were failing to price in the likely impact of Covid-19. Then, soon after they finally realised Covid wasn’t just a problem in other countries, they failed to price in the likelihood of a second wave of the virus.
Second wave
The Spanish Flu of 1918–1920 came in three waves. The second claimed the most lives. Yet the markets seemed to dismiss the danger. It was like they were saying ‘that was the past, now is different’. Then news broke that Iran was experiencing a second wave, but they seemed to say ‘Iran is different’.
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Yesterday stock markets finally plummeted. In California, Texas, and Florida, new infections look to be in danger of growing exponentially again. Until yesterday, markets seemed to be ignoring this harsh reality. If we don’t see a second wave of Covid-19, I will be delighted, but surprised.
That is why I do not expect any return to normality soon. Markets, by contrast, had been behaving as if normality was around the corner.
I know it is a cliché to talk about a new normal, but that is what we are going to get. I want to make a prediction concerning a new cliché for the next six months – the Zoom economy. By the end of this year, we will all be fed up with hearing about the Zoom economy.
Tech investment in the year of the Zoom economy
Remote working is here, and across the world, people are discovering it’s not so bad. The new Zoom economy will see productivity finally grow at pre-2008 rates. There will be a hollowing out in city centres, automation will accelerate, output will recover reasonably quickly, but jobs won’t.
Yet in one respect, markets have got it right. In one respect, super-higher valuations are justified. I refer to technology stocks. Tech investment has been a winning strategy these last few months, and there is a good reason for that.
Whatever cliché you want to use to describe the post-Covid economy: new normal, Zoom economy, or something else, the companies that thrive will be those which provide the technology for this age. Cloud providers, smartphone companies, producers of apps, telemedicine firms, cybersecurity businesses, AI specialists, and companies that support digitisation will become the quality stocks post-Covid.
In times of trouble, we often see a flight to quality. I think that in the new normal, quality will be tech, and tech investment will be the best investment strategy.
