Visual aid used to communicate expectations of the pandemic’s effect on markets and growth
Alphabet soup has been on the menu in this historic year. Central banks fired volleys of acronym-laden financial assistance at the collapse in economic activity when lockdowns kicked in, from Europe’s PEPP to the Bank of England’s TFSME and the US’s dizzying mix of Ls, Fs, Pc, Cs and Ms. (Only purists know their MMLF from their MSLP.)
Markets proved powerless to resist this relentless barrage of letters and, despite an economic crisis unmatched in modern peace time, embarked on a V-shaped recovery.
In the US, home of the global benchmarks of financial ebullience, the S&P 500 index is on track to end the year with a gain of around 14 per cent, a recovery from the March low of nearly 70 per cent — extraordinary by any standard but particularly for a year of such grotesque disruption.
Tech stocks in the US, meanwhile, can boast gains of around 40 per cent on the year, measured through the lens of the main Nasdaq indices. These stocks suffered more mildly from the pandemic in the first place and then offered outstanding revenue growth in the breakthrough year for working, playing and shopping from home. Their rally of close to 90 per cent since March diverges sharply from the fate of stocks in beaten-up sectors such as banking, leading to claims of a K-shaped rebound. The UK’s FTSE 100, still bumping along at 12 per cent weaker on the year, may need its own new letter.
The alphabet has been a key way to get all this across to the general public. Central bankers patiently explained how we could all hope for rapid V-shaped recoveries, but slovenly Us, bumpy Ws or even flatlining Ls remain a clear possibility. It should be little surprise that forward-looking markets are more V- or at least W-like than underlying economies, which will need longer to heal.