It was the height of the Delta variant scare. Concern was growing that this rapidly spreading strain could mutate and undermine our vaccination progress. But we urged a closer look at the local data, which suggested to us that new cases in the U.S. could “peak within one week.” The seven-day average rate topped out 12 days later.

Ironically, that note also marked the high point in the S&P 500 Index and the most recent low point in equity market volatility. On the very day that new COVID cases peaked, I wrote about a coming “October Surprise” of market downside. Just as the most disruptive event in 75 years of global economic history appeared finally to be behind us, investors decided to embrace their gloomier side.

How can we explain this? The short answer: We may believe that the worst is over, but working through such a seismic shock will be a slow process, with fits and starts. Moreover, the new reality, both cyclical and secular, is beset with complex challenges.

More spending is still to come from the U.S. government, and “NextGenerationEU” funds are just starting to be disbursed in Europe, but overall, the fiscal impulse is likely to turn negative over the course of 2022, after being strongly positive in 2020 and 2021.

At central banks, asset-purchase tapering will likely be underway within a few months’ time. I remain skeptical that the Federal Reserve will move this fast, but markets have dramatically pulled forward their estimate for the first rate hike to the third quarter of 2022. The Bank of England looks set to raise rates before Christmas. Among developed market central banks, Norway and New Zealand have already moved, as have South Korea, Brazil the Czech Republic and others in emerging markets.

The first shock was negative on both sides: Supply and demand slumped as lockdowns essentially closed the world economy. The next shocks were positive: Government stimulus and reopening spurred a huge rebound in demand. But, as current inflation dynamics reveal, supply has been unable to keep up, due to long lead times in manufacturing and huge disruption in labor markets and supply chains.

Slowing U.S. jobs growth paired with rising wages point to how tight the labor market is. Some of that may loosen as government support rolls off, but a lot of people also appear to be making big decisions about their working lives—whether that be early retirement, time out, relocation, retraining or simply rethinking priorities. After edging upward between 2015 and the pandemic, the U.S. labor participation rate remains two percentage points below its January 2020 level, despite growing vacancies.

Energy shortages, soaring commodity prices and container ships piling up in ports around the world reveal a supply chain under immense strain as post-pandemic demand picks up. Again, some of this is likely to ease as drivers, sailors and maintenance engineers get back to work. But, as Brad Tank has written, temporary disruption incentivizes companies to take long-lasting action to prevent it from happening again. That means diversifying, localizing, automating and building redundancies into their supply chains, as well as responding to their own customers taking similar action.

These are all big investment themes to seek out today—from the Internet of Things to regional reindustrialization—but their benefit to the wider economy is likely a ways down the road. In the meantime, these projects eat into growth and corporate earnings potential, exacerbating supply-and-demand imbalances and inflationary pressures. Looking longer term, carrying more inventory could give our economy a pre-1980s look—and bring back some pre-1980s volatility to the business cycle.

China provides investors with another complication to this story. Its recent policy announcements reveal it is moving away from reliance on growth powered by infrastructure, real estate development and low-cost manufacturing exports, and toward slower growth that prioritizes self-sufficiency and “shared prosperity.”

That brings near-term risks, exemplified by the credit problems in real estate businesses such as Evergrande, Modern Land and Sinic Holdings. Longer term, China’s new relationship with the global economy is likely to mean somewhat lower growth and higher inflation than we have been used to since it joined the World Trade Organization 20 years ago—not to mention potentially greater geopolitical risk.

Markets have put aside much of their concern about the immediate risk of another serious COVID-19 setback. In its place, however, we have the prospect of a cyclical growth slowdown and tighter financial conditions. Looking further out, investors worry about slow and volatile secular growth, high inflation, rising rates and deglobalization.

That would be a very different environment from the one we have become used to over the past 40 years, and, as Erik Knutzen noted last week, it is likely to take some time for investors to process this shift in focus. Volatility is likely to be a feature of the rest of this year, at least. The worst of this great crisis is probably over—and now the investment decisions get more complicated.