I think the rough market consensus at the moment is as you state it - this is a natural disaster which will be over soon. That is a possible outcome at this point, but a second wave in the US for example would have significant impacts and cause entire industries to fall into bankruptcy - wiping out shareholders and leading to significant second-order effects on other industries and supply chains, plus causing a consumer-led recession. It seems increasingly unlikely to me that this will be over as soon as you expect. Just to pick one example - that 20-30% unemployment will not go away quickly if this is not over in the next month or two for the US and those people rehired. Companies will not rehire unless they are certain it is over.
Current recession doesn't have implications 5 years into the future
Remind me in 5 years! I don't think it will impact behaviour massively in 5 years, but I do think there is a danger this recession could trigger significant other events which have impact for more than a few years - for example unrest in the middle east after 2008 led to regime change in many countries, and ongoing war in Libya. Economic depression, unrest and wars are a common occurrence after smaller crises than this one.
When people say the market is irrational it is more to point out that the market valuation swings about the future expected returns quite wildly - for example if what you say is true, the market should not have crashed quite so strongly when coronavirus first spread then bounced back quickly again, but it did, because people panic. It does the same in the opposite direction based on incomplete or incorrect information about drugs/vaccines. There's a nice graph in the above book of the expected return from stocks (pretty much a straight line up and to the right, with small bumps on the way), and stock market valuations (massive swings around the expected return based on sentiment in that moment).
It could be a rational reason for markets to swing wildly because of uncertainty about future. It might take time to gather enough data to assess the risks properly, and while risks are as unknown it is rational that market will be valued lower.
Each bit of knowledge makes uncertain a little bit less uncertain.
https://www.gurufocus.com/news/336523/speculative-asset-pric...
https://www.nobelprize.org/uploads/2018/06/shiller-lecture-s...
The comparison is between the actual stock prices against the constant discount rate of subsequent real dividends.
Day to day prices are unforecastable, and it's not really understood what drives pricing in the market.
The EMH states that the market incorporates all currently available information, but future dividends are known only in hindsight. Prices that fluctuate around future earnings therefore are not in conflict with efficient markets at all.
Yes the chart compares measured return (divs) against projected return (prices) so it is not a prediction machine but I think it does illustrate well that market prices are usually far from true value.
There's predictions expecting 30% unemployment since March for Q2, and also predictions expecting 50% GDP drop for Q2.
So current market should have these predictions priced in.
I think one major thing that people fail to consider is that this recession is not like other recessions - namely, it's not failing of economics, or a bubble popping, it's a temporary natural disaster and economy is deliberately shut down. So it shouldn't be compared to other recessions which were issues with how economy worked. Right now there's no evidence that economy or system is failing by itself. Of course it might, but there's no evidence.
I think current market price stems from rational strategy by investors. This is why I think markets are rational. Current recession doesn't have implications 5 years into the future. We might lose some potential developments we could've had right now, but it just gets delayed few years, so it's not a big deal.
Maybe it is hindsight to me, but to me it seems clear why stock market has the current price it is. Maybe I'm "overfitting" somehow my theory, but it seems to make sense to me and I'm not seeing a clear logic error with my theory. I've argued a lot on this topic on this forum and reddit, and I haven't seen good retorts yet, it's just that I'm not getting any responses or somebody says "I just disagree and that's it".