Stock markets give us a glimpse what people with money have deduced about world events before they happen. Investors can make mistakes, sometimes terrible mistakes, but they are honest mistakes: you don’t buy a stock at a 100 if you actually honestly believe that same stock will only cost 50 next week. So whilst you might be wrong in following a herd, or you may be mislead, the price of stocks still reflects an honest valuation at that moment. This makes stock markets very useful for reading political and economic events, though interpreting them requires a lot of knowledge of the possible influences on those prices. I want to tell the story of how the markets seem to have read the covid-mania of 2020 in 3 graphs, where the last one is the most depressing one.
The first graph shows the stock value of Airbus, a European company that makes airplanes. The restrictions on travel throughout the world decimated the industry it made planes for, such that the number of orders for new planes dropped from about a 100 a month to nothing.
This graph first off shows you the whopping 65% drop from the end of February to March 18th. Thus the markets in early March saw coming that governments were going to make life tough for the airline industry, long before many governments actually instigated lockdowns or travel restrictions. The market analysts were quicker than me, because I only started to really see what was coming around March 10th. The graph thus shows you the uncanny speed with which financial analysts are reading future political decisions.
You see an uptick in June when restrictions were eased in many countries and the markets had some reasonable hope that the covid-related travel-restrictions were going to come to an end soon, though not a huge amount of hope because the uptick was ‘only’ 20% or so. That uptick probably also had to do with the fact that governments were bailing out their airline companies, so investors knew bankruptcy was not going to happen. Airbus was too big to fail.
You see the drop in October when markets realised Europe and some US states were going to lock down again, even though that only actually happened a month or so later. The uptick in November then probably reflects the fact that markets started to believe vaccines would actually come in much earlier than previously thought and would allow some degree of normalisation, though still estimating that Airbus was worth 30% less than at the start of 2020.
So the Airbus stock price tells you the standard story of what forward-looking financial analysts were thinking at different moments about the political economy of the pandemic, pre-guessing lockdowns, reduced restrictions, a second lockdown, and vaccines. What you also see in the strong price changes though is that they did not see things coming way in advance, but more like a few weeks in advance, and that they got some things ‘wrong’ in a longer-run sense: if you’d had known on March 1st what was going to happen with lockdowns, you would have made a killing betting on a big downturn the next two weeks. If you’d have known markets would believe in vaccines in November, then you could have made a killing by buying up this stock in August. Hence, in many ways, the Airbus stock price is a standard, but beautiful example of how stock markets tell you of the reality and limitations of forward-looking information in prices.
The second graph I want to talk about is that of the NASDAQ, which is the main stock market for the US Big Tech companies.
This graph tells you a very different story. Just as with Airbus, there was a big general crunch early March of around 30% of the initial value, which was less severe than with airbus that lost 65% of its value. So there is the same story of how financial analysts predicted the lockdowns, but it also shows they predicted that the policies would hurt Big Tech less than it would hurt the airline industry. Still, they anticipated covid-mania would be bad for Big Tech.
The second big thing about the graph is the continued rise from April till about August, increasing the index 20% above February prices. So unlike Airbus that was still 50% down in August, the markets had learned that covid-policies were actually really good for Big Tech, which was not anticipated but came as a surprise. Big Tech was the big facilitator of covid-mania, something the markets started to realise around late April, so pretty quickly. They started to notice the increase in online shopping, online job search, online socialising, online everything. What they also learned was that governments were not stopping it by hampering home deliveries or using the opportunity to muscle in on Big Tech monopolies.
The drop in October is relatively small and probably some kind of correction on the assessment of how well things were going for Big Tech. The blip down at the very end is due to the US authorities talking about breaking up Facebook and perhaps other Big Tech companies.
So the story of the Nasdaq tells you that the benefits Big Tech got from covid-policies were unanticipated but very large (almost a doubling since the end of March). This of course tells you exactly why Big Tech is so keen on extending lockdowns and the covid-mania via censorship and disinformation: long may the good times last for them! And the markets clearly anticipate there will not be much of a backlash.
Whilst the second graph is depressing enough, the third one is really nasty in my view. It’s the story of Starbucks, the coffee chain.
Now, this stock first behaves the way you’d now expect: just like Airbus, coffee chains are really hampered in their business by the lockdowns and other covid-mania policies, so the markets anticipate a big drop in business, and thus we see a 40% drop in share value early March. The downturn is also what the company itself reports, flagging in June that it had over 3 billion dollars less in sales, and that is just from the preceding quarter.
The first surprise is the uptick in April-May, probably related to government subsidies which big companies are good at securing.
The depressing bit is the large uptick after August: an increase of about 30% coinciding with the new lockdowns, making the company worth 10% more mid December than in February, even though turnover is still highly depressed and whilst it will probably take take years for coffee-fueled office life and tourism to return to normal. What is going on, you might wonder? Why are we not seeing a lower valuation for Starbucks at the end of such a terrible year for them, just like we saw for Airbus?
The Financial Times tells us the likely reason: many of the smaller chains (like Nero) and independent coffee shops are going bankrupt, leaving Starbucks a bigger market share. This is probably also why by now, the Dow Jones index in the US is above its pre-March level and why the Indian stock-market (the Nifty50) is up almost 15% on the start of this year despite a drop in GDP of over 10%: big business is now expected to gain from the demise of small business that is squashed by the covid-policies. This too was not foreseen early on.
I find this quite depressing because in a way I am looking at the demise of independent and smaller businesses in this graph, with the bigger companies soaking up the additional demand. It’s the modern version of the enslavement of a once free population: from independent coffee shop owner to an employee who will have to clock in hours, abide by company procedures, and do tonnes of corporate responsibility training. From proud workers to schmucks who have to smile on demand and sign non-disclosure contracts they don’t understand.
So there you have the basic story of the covid-mania in three stocks: a hit of 65% to the travel industry that became 30% when government subsidies and vaccines softened the blow; the unexpected gains of Big Tech making them have an interest in continued covid-mania; and the decimation-by-policy of the independent smaller businesses leading to gains among the big boys, heralding a more feudal and more unequal future for the vast majority. Let’s hope the markets are wrong about that.