The End of Pandemic Investing Is Near. Say Hello to Old Worries.

Illustration by Adam Simpson

After months of grappling with infection rates, comorbidity risks, and the elusive depths of human anxiety, in 2021 investors can get back to what they are meant to be good at: discounting future returns.

Tighter government restrictions and rising Covid-19 caseloads will make for a difficult winter, but the rollout of effective vaccines in Europe and the U.S. means that market analysts can give up any pretense of insight as amateur epidemiologists and return to parsing economic data, scrutinizing earnings reports, and taking some rough assessment of political risk. Specifically, U.S. investors will need to keep a sharp eye on lingering wounds to the labor force, fresh risks to corporate balance sheets, and the return of global tensions with China.

Investing has always been more art than science, but the pandemic shock and the massive policy response required even more heroic assumptions based on estimates perched on guesses. The actual infectious-disease specialists were themselves coming to terms with the pace of the Covid-19 spread.

In the U.S., especially, political parties then filtered the science into competing narratives that delivered a broad range of policy responses and levels of lockdown. Beleaguered financial analysts were left adrift to contemplate the deep recesses of human fear and likely behavior. When will everyone go shopping again? When will they board a train? When will they dare to shake hands?

After a challenging winter, the recovery will likely accelerate as coronavirus fears dissipate. Even today’s elevated markets may have room to run amid a burst of relief and the animal spirits that John Maynard Keynes identified. We will get a surge in pent-up shopping, delayed travel, and celebratory parties.

Before we know it, we will find ourselves deep into the new normal and wondering why it seems so much like the old normal—but with some additional wounds from this year’s trauma.

Already, the U.S. labor market data no longer delivers wild swings recorded in the lockdowns this spring as it returns to familiar incremental patterns. Many jobs are back, but the momentum is slowing, with initial jobless claims now trending higher toward a million per week. For the rising numbers of long-term unemployed, finding a steady paycheck will get progressively harder.

A new relief package is on the way, but months of congressional delays and fresh winter lockdowns will make the recovery slower and more painful than it might have been. Recall, economic forecasters were worried about stagnating global growth rates well before most of us had ever heard the word “coronavirus.” None of the secular challenges stemming from demographic change, technological innovation, and excess savings has gone away.

As the macroeconomic data helps paint a clearer picture, companies have returned to providing earnings guidance after months of giving up altogether amid peak uncertainty. There’s still plenty of gaming to steady share prices, but it’s a familiar game that allows investors to sharpen their pencils and make reasonable forecasts that help assess current valuations.

While many risk assets have moved higher in the vaccine excitement, it will soon become a stockpicker’s world of choosing winners and losers. With large firms awash in short-term liquidity, analysts will need to identify which business models will deliver long-term solvency in a world of new work, shopping, and travel habits. Fresh investments in work-from-home technology will boost margins for some, but not all. Some managements may return that excess capital to shareholders, but others will be tempted into problematic acquisitions.

Finally, as postpandemic investors leave behind nebulous recovery projections based on obscure public-health websites, they can return to equally ambitious assessments of global political risks. These, at least, are more familiar, even if they spotlight a world order that continues to disintegrate. If anything, the pandemic has accelerated widening gaps in wealth, technological literacy, and commitment to global engagement.

Most difficult will be the complicated relationship between the U.S. and China, which has grown even more complex and emotional in the name-calling and recriminations over the origin of the novel coronavirus. Meanwhile, the new Biden administration has promised to repair relationships with allies, but they are already skeptical of an America that has turned inward. And the list of other challenges that might raise discount rates or oil prices remains long: accelerating climate change, unraveling cybersecurity, and the perennial concerns about Middle East tensions.

The new year will soon feel familiar to investors who navigated the Covid-19 shock mostly rudderless while pretending to understand the charts. But the return to familiar waters means avoiding the same old shoals and understanding that some—slower economic growth, transforming business models, and rising global strains—have grown even more treacherous.

Christopher Smart is chief global strategist and head of the Barings Investment Institute.