When the days draw in, the darkness can affect your mood: the winter blues is a common phenomenon, according to psychologists. This winter, the distraction of festivities or getting together with family and friends will be restricted.

The coming winter months will not be easy for the economy, either. In addition to the health risks, the second coronavirus wave will also have a major economic impact. Already weakened by the global recession triggered by the first wave of coronavirus, the latest decline in demand presents a huge challenge for many companies.

But the financial markets are not currently being dragged down by the winter blues. The US equity market has hit new highs, risk premiums on corporate debt are falling and the Swiss franc – a safe-haven currency – has also depreciated recently. Where are the financial markets finding their resilience?

Far-sighted or dispelling inconvenient truths?

Firstly, this resilience can be explained by the fact that the financial markets trade on what’s going to happen in the future. Companies’ profit forecasts depend more on their long-term future prospects than the current situation. With the arrival of spring – as we have already experienced this year – we can expect a fall in coronavirus case numbers, increasing levels of activity and a recovery in economic output. Following the recently announced progress on vaccines, the light at the end of the tunnel has become even brighter.

Secondly, simply filtering out bad news is a common human strategy. The financial markets also seem to do this. The economy will not come out of this crisis unscathed. The economic scars will take some time to heal, and the crisis will require patience. A return to more sustainable fiscal and monetary policy is not expected in the foreseeable future. While anxiety over the US election has subsided, US society still faces enormous challenges.

Neutral positioning appropriate

In light of these two explanations for behaviour on the financial markets, we consider neutral tactical positioning of the equity allocation in our portfolios an appropriate step. The financial markets are quite rightly not placing too much emphasis on the current situation. After all, spring will follow winter. Some euphoric developments on the financial markets must nevertheless be treated with scepticism. The financial markets cannot move too far away from the inconvenient truth that a vaccine will not resolve the health and economic problems overnight.