I’ve been staring out my window for the last 15 minutes or so, trying to think of a pithy way to put this. No success, so I’m writing this instead:

In the first half of the last century, Saudi Arabia’s economy was supported by taxes on Muslims making the pilgrimage to Mecca. That source of income dried up during the Depression and WWII. So Riyadh opened itself to development of what turned out to be gigantic oil reserves by the major Western petroleum companies in return for a (very small) cut of the resulting revenue.

So, a temporary dearth of worshippers triggered a mammoth, decades-long, worldwide change in the way energy is used in transport and heating, and in the materials out of which everyday objects are fashioned.

I think the pandemic has the potential to be the same kind of transformative event, implying the potential for very high rewards for investors who figure out the twists and turns this story may take as it continues to develop. I don’t think this is a “today” story for the stock market, because the exit from global crisis mode will certainly entail a rise in interest rates. This means equities will no longer be the only game in town, in the way they have been over the past 18 months or so. Another way of putting this is that concept will only get you so far.

…which brings me to what I started out to write about.

My favorite description of the stock market is that it is the arena in which the hopes and fears of investors meet the objective characteristics of publicly-traded companies and express themselves through stock prices. Two criteria: concept (sort of an elevator speech about where a company is going), and valuation (the price of the stock, relative to its expected future).

During the pandemic, my perception is that almost no one has cared about valuation. Everything has been concept. Over the past few weeks, however, I think this has begun to change. Former high-flying stocks of companies that have reported below-consensus earnings–or provided below-consensus guidance for future earnings–are starting to decline on the news. I think this is an important change of tone, away from the all-offense, no-defense mentality that had dominated 2020-21 trading until now.

I think this is a positive sign, since I interpret it as part of a more general return of the world economies to normal operation. At the same time, the price of making a mistake will be much higher than it has been to date.