Market Viewpoints – Summer 2020

By Keith Bonjour, Portfolio Manager

Keith Bonjour, Portfolio ManagerWhile we have seen a nice recovery in the market after the sell-off, it is important to look forward into 2020 and be mindful of the risks that the markets face. We continue to recommend a more neutral stance on equities favoring U.S. stocks over International stocks and higher quality companies with strong balance sheets. We also recommend determining any short-term cash needs that will be needed over the next six to twelve months. We continue to recommend a more long-term focus on investment goals and objectives, and not reacting to short term up or down movements in the market.

The stock market staged a strong rebound in the 2nd quarter of 2020, after the large selloff caused by the COVID-19 pandemic and measures taken to lock the most global economies down to reduce the spread of the virus. The swift and massive stimulus measures implemented by the Federal Reserve along with the stimulus bills passed by the US government helped to provide the liquidity and relief that the US markets and economy desperately needed. So far, these measures have proven to be strong enough to help both stocks and corporate bonds recover a large portion of the losses they suffered during the early stages of the economic shutdown. We have seen signs over the last two months that many businesses have begun to bring their employees back to work in the office. We are also seeing many employers rehire those workers who were laid off with a big increase in the reported jobs numbers of the last two months. However, the unemployment rate is still hovering a little over 11% so there is still a ways to go and a long road ahead before we see unemployment numbers return to a more normal level.

In the US, COVID-19 cases are on the rise again. It will be important to watch how things progress over the next few months to see if states are able to continue with their re-opening plans in a safe manner. We do expect the market and economy to go through fits and starts as the situation continues to develop for the remainder of the year. On the plus side, there is a huge race for treatments and vaccines with many companies showing some good early indications for a potential vaccine. We continue to view this as an important piece of the puzzle to get the economy back on track, however we acknowledge that this is going to take time and do not expect to see any vaccine approvals and mass production until sometime next year. In the meantime, it will be important to watch how corporate earnings shape up in the second half of the year to see how companies are able to manage their businesses and try to return to profitability as the economy slowly recovers.

The increase in unemployment benefits is set to expire at the end of July so we will be watching to see if Congress is able to pass any additional stimulus measures in July or August to continue to help consumers and businesses weather the COVID-19 pandemic. There continues to be talk, both in the House and Senate, regarding additional stimulus, but so far no new agreements have been reached. Without additional stimulus measures, the growth outlook in the US could be constrained especially if COVID-19 cases continue to rise through the summer months, which will weigh on the economic recovery. Globally, COVID-19 trends have been improving in most developed European and Asian economies. South America is experiencing large outbreaks of COVID-19 similar to what we are seeing in the U.S. This will be important to monitor going forward to see if both Europe and Asia are able to show better economic growth than the US and South America.

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