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Major and minor

Despite this, equity markets have renewed vigour. It would be exaggerating to say they are roaring away, but the FTSE All-Share index looks set to record its fifth gain in the past six trading days and, during that time, has risen 14 per cent.

Partly this is because boredom sets in quickly among traders and Covid-19 is losing its ability to shock. Two more serious perspectives also figure. The first is – in a sense – the insignificance of Covid-19. To date its global death toll is 33,106. That is nothing compared with the numbers who have succumbed to other causes. The Washington-based think-tank Brookings points out that even in February and March, when the coronavirus was rampaging through China’s Hubei province, it ranked a lowly 49th among the causes of death in China. Covid-19 claimed about 3,000 victims in that period, while the Grim Reaper pulled in about 300,000 from strokes and heart disease combined.

Even in Italy, where there are 15 times as many coronavirus cases as China adjusted for the population difference, Covid-19 was still only the eighth-largest cause of death in February and March. In Europe’s ‘oldest’ country, heart disease and dementia led the way.

The second perspective is that, while the death toll from Covid-19 may be insignificant, the measures to counter it are absolutely necessary. This simple truth has been grasped not just by traders – although they’re risk takers, they are smart enough to see the obvious – but by Mr and Mrs Average.

It’s all to do with the way contagion works, they’ll tell you. A virus is a bit like a pop singer’s career. Either it will go the way of Billie Eilish or it will be a bit like the one, you know, who ended up working in Topps Tiles. In the case of a virus, it will soar if there is nothing to check it. In that case, the exponential growth we hear so much about – where numbers rise as a fairly constant multiple of a fast-expanding base – lets rip.

For example, in the past 10 days just 57 deaths have been added to China’s toll, bringing it to 3,310. However, if the virus was raging in China at the pace it has been tearing through Spain, China’s death count would have risen by about 27,000. It would then head for 300,000 in another 10 days and hit about 2.6m by 20 April.

So Covid-19 presents a weird contrast. Simultaneously, it is an almighty fuss about not much and a towering threat. Still, it doesn’t do to be complacent. After all, the world’s best forecasters remain cautious; not just about the virus’s progress, but also about the short-term outlook for stock markets.

By ‘world’s best forecasters’, I refer to the team of forecasting obsessives at the Good Judgement Project set up by Canadian-American psychology academic Philip Tetlock of the University of Pennsylvania (see Bearbull, 28 February 2020). This team, which has proved itself time and again, thinks there is a 20 per cent chance the S&P 500 index of US shares will fall at least a fifth from its current 2596 by 19 June. How worrying is that, given it’s a signal London’s FTSE All-Share index is likely to go in the same direction?

Twenty per cent seems quite a high probability; although much less so if we use betting odds and call it a 4-1 against shot. Widening the probability bands makes the scenario more vague, but at least we get consensus. To a question framed on 19 March, will the S&P 500 be at least 5 per cent lower by 19 June (or 12 per cent below its current 2596), then the probability currently rides at 52 per cent; in other words, it is odds on.

The prevalence of the team’s pessimism is underlined by its lack of bullishness. The probability of the S&P 500 even maintaining its current level by mid June is just 27 per cent. As to being even 7 per cent up (or at least 15 per cent above its level of 19 March), the probability drops to just 8 per cent – about 12-1 against in betting odds.

This caution is consistent with the project’s forecasts about Covid-19. These cluster towards the pessimistic end of the bands for forecasts of the death toll globally and in the US by the end of next March. And it won’t take much to cross from the lowest band – below 80,000 dead worldwide – to the top band (over 80m). If deaths rise by just 1.9 per cent a day that would do it and they have been rising at 30 per cent a day in the US for the past 10 days (and 24 per cent in the UK).

That said, I would guess that, when next I check on the Good Judgement Project’s outlook for both the war on Covid-19 and the equity markets, I’ll see a more optimistic tone. It’s not just because self isolation – seen to work in China – is showing the right signs in Italy and already in the UK. It’s also because those guys are smart enough to know that when exponential growth goes into reverse, the ‘shrinkage’ is faster than the expansion.