Remember the V-shaped recovery? Not long ago, it was the economic consensus: a short sharp shock from the pandemic followed by a rebound in the third quarter.
The trillions of government support were bridge financing, just to keep the lights on until the inevitable joyous explosion of pent-up demand.
V for victory! But it became clear this week during a series of corporate announcements that it was V for vain hopes.
“If we had to make a bet today, we would say that it’s not going to be a V-shaped recovery, and it’s probably not going to be U or an L, but it’s going to be some other kind of shape,” said Carlos Rodriguez, amateur geometrist and chief executive of payroll processor ADP. Perhaps a “Nike swoosh”, he suggested.
In a V-shaped world, holidaymakers would emerge blinking from lockdowns and jet off to the beaches. But Norwegian Air Shuttle warned this week it expected to stay in “hibernation” for the next 12 months and would only resume normal operations in 2022. British Airways then announced 12,000 redundancies and said it would “take several years” to return to last year’s passenger levels. Having maintained his optimism as recently as last week, Michael O’Leary of Ryanair on Friday forecast last year’s level of demand would not return until the summer of 2022.
As Southwest Airlines chief Gary Kelly put it: “If it’s a V-shape recovery, well, we’ll all high-five each other and we’ll go buy some more airplanes. But I don’t think that’s the most likely outcome right now.”
This souring of the corporate mood has been accompanied, bizarrely, by a mini-boom in stocks. After surging prices in April — the biggest rise on the S&P 500 since 1987 — we are already well along the uphill slope of the V. Investors are determined to follow the outliers and the miracle merchants.
Gilead Sciences, a California-based biotech company, has become the bellwether stock for the entire market. Promising trial data on using Gilead’s remdesivir antiviral to treat Covid-19 sends the whole market higher; negative data is quickly shrugged off. Even if the treatment works, though, it is no wonder drug; in the best case, it could shorten hospital stays. Nonetheless, Gilead shares are up more than a quarter this year.
The real rocket boosters come from the tech sector. Of course there is Zoom, the now ubiquitous video calling service, but the market cap heavyweights such as Alphabet, Apple and Microsoft are lifting the entire S&P 500. As we all stay at home on video calls and consume social media ad content on our iPhones, that sounds reasonable. But a few months from now, who will be employing these home workers, paying for their smartphones and advertising to them?
Not just airlines, but many other industries are stricken. Restaurants are warning they cannot survive lockdowns for much longer — but it is also hard to imagine packed dining rooms when they do reopen. McDonald’s acknowledged as much this week, with chief executive Christopher Kempczinski noting that “we’re not seeing a V-shaped recovery in China”. However, most McDonald’s in the country do not have a drive-through facility. In the US, 95 per cent do, dodging the problems of social distancing. In Europe, where McDonald’s is slowly reopening, Big Mac maniacs endured a three-hour wait in France and a two-mile queue in Austria. A lot rests on such nuggets of optimism.
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