The image this week of masked traders returning to their posts at the New York Stock Exchange, thumbs aloft, was the clearest sign yet that financial life is starting to get back to normal after the darkest days of the coronavirus crisis.
Two months after the NYSE shut its doors for the first long spell since its inception 228 years ago, around a quarter of traders were allowed back into the building.
Yes, there were restrictions on movement and perspex screens and limitations on numbers. Staff had to sign papers indemnifying the exchange if they caught the illness. But they were back. New York state governor Andrew Cuomo rang the opening bell.
The return reflected a growing sense of optimism on the economic rebound. Most states have begun a phased reopening, and consumers are cautiously venturing out of quarantine. Retail traffic is increasing, and restaurant reservations have ticked up as well.
The cheerful scene at NYSE and the wider sense that the country is moving beyond the worst of the Covid-19 crisis have been mirrored in the huge rally in US and global stocks since March 23. Markets are firmly back in business.
The economic realities paint a more sobering picture. Douglas Porter, chief economist at BMO Financial Group, has started calling the coronavirus-induced economic shutdown the “two-month recession”. The road back from it will be a tough one.
In the coming months, more businesses will become insolvent. Workers will remain unemployed, and it will take time for people to feel comfortable about coming into contact with others. A trip to the cinema, anyone?
“Markets are more upbeat than a typical economist,” says Mr Porter.
Getting back to normal is not a matter of flipping a switch. “It’s up to all of us, it’s actually not up to the elected leaders when we reopen, it’s up to all of us when we feel safe,” as Minneapolis Fed president Neel Kashkari put it on a recent webinar.
Governments have begun to open the supply side of the economy, but demand will probably take longer to catch up, as China has already shown.
The rebound will happen more slowly in some industries than in others. BMO predicts that air transportation, accommodation and arts and entertainment will be operating at only 50-65 per cent of previous levels in a year’s time, while real estate, professional services, healthcare, construction and many others will be back to 100 per cent.
The speed of business recovery hinges on how much contact is involved, and whether it involves a service that can do enough business to make up for what was lost during the lockdown.
As Carlos Garriga, a St Louis Fed economist says: “In the service industry, there is no such a thing as you know, I’m going to be eating five meals a day. You may spend a bit more in more expensive restaurants, because you may have not spent any money in the second quarter, but is really difficult to catch up with services.”
And while most of us now need a good hair cut, “a lot of that activity is lost forever”, says Mr Porter.
Not to mention that “some activities could return in a meaningful way only after a vaccine arrives (taking a cruise comes to mind)”, BMO predicts.
Permanent changes to our behaviour are also hard to predict. More virtual meetings may reduce business travel. Comfort with home cooking may result in fewer meals out. Remote working, for industries that can manage it, could reduce reliance on large corporate offices and the coffee spots nearby.
All this sets up equity market bulls for disappointment. Experts continue to warn that the key to returning to normality lies in curtailing the disease, and that may take much longer than markets appear to be anticipating.
“Ultimately until we have confidence that the medical professionals and the medical infrastructure has its arm around the virus with a vaccine or with massive widespread testing or an effective therapy, it’s hard for me to see going back to normal as we knew it in January or February,” says Mr Kashkari. “That means, unfortunately, that the economic recovery is going to be more slow.”
The sparkling market rally since late March has reflected a burst of optimism from investors on life beyond Covid-19, but the “two-month recession” may need a much longer recovery than they and the smiling traders at the NYSE hope.